Government pressing on with sale of partial stake in state-owned company

The London Financial Times is reporting that the French government, after overcoming last minute doubts, has decided to proceed with the sale of a 35% percent stake in the state-owned SNECMA turbine engine manufacturing company. SNECMA is the parent company of several aircraft engine and aviation-related manufacturers, including Turbomeca and Microturbo, which manufacture helicopter powerplants, and small turbines for manned and unmanned aircraft, respectively.

However, the price for that percentage of the company, representing a privatization effort that has suffered through long delays, was set lower than expected.

The French finance minister, Nicolas Sarkozy, announced that shares of the company would be sold at between 15.45 and 17.20 Euros, in a bid to raise up to 1.63 billion Euros (approximately $2 billion US dollars). Previously, there had been hopes by the ministry that the sale of the shares would have raised between 1.5 and 2 billion Euros.

Jean-Paul Bechat, SNECMA's CEO, said shares in the company would begin trading on the Paris bourse at noon on June 18. The final share offering price will be set and announced on June 17.

The price could turn out to be higher or lower -- that would depend on the investor demand and confidence, in a manner similar to that of private companies going public through IPO's. The sharp rise in oil prices and market volatility have been cited as factors that will affect the price on June 17.

Industry analysts believe that the sale of a minority stake in SNECMA is a gamble on the markets, and is more a reflection on the pressure Mr. Sarkozy is feeling from the government and the markets than anything else. It is widely believed that the sale will help raise funds to reduce the French public debt from 64 percent of GDP to the EU ceiling of 60 percent.

This sale is also expected to be followed by other state privatizations, and the sale of partial stakes in France Telecom, Air France, Electricite de France, Gaz de France and the Paris Airports Authority, among other possibilities.

One possible buyer for the SNECMA offering is General Electric, which has expressed an interested in buying into the French engine maker. However, industry sources believe that GE will not participate in the initial sale, waiting instead to see how the offering sells in order to better gauge the true value of the shares.

FMI: http://news.ft.com, http://www.snecma.com/en/group/index.php