US embassy cable - 05PARIS7334

UNCLAS SECTION 01 OF 02 PARIS 007334 
 
SIPDIS 
 
PASS FEDERAL RESERVE 
PASS CEA 
STATE FOR EB and EUR/WE 
TREASURY FOR DO/IM 
TREASURY ALSO FOR DO/IMB AND DO/E WDINKELACKER 
USDOC FOR 4212/MAC/EUR/OEURA 
 
E.O. 12958: N/A 
TAGS: EFIN, ECON, PGOV, ENRG, FR 
SUBJECT:  DETAILS OF EDF'S PARTIAL PRIVATIZATION 
 
 
1. SUMMARY.  The partial privatization of Electricite de 
France (EDF) will be done through an increase in EDF's 
capital and a sale of government shares to EDF's employees. 
The government will keep a substantial 85% stake in the 
company.  The initial public offering of EDF's shares will 
start on October 28.  The company should be listed by 
November 21.  Increasing the capital rather than selling 
existing shares allows the government, which has been facing 
union anger (septel), to placate the unions by keeping a 
substantial stake in the company and to access more capital 
to finance an ambitious investment strategy.  END SUMMARY. 
 
2.  On October 24, Prime Minister Dominique de Villepin 
announced the partial privatization of EDF.  The government 
gave the go-ahead after receiving investment and public 
service guarantees from EDF (septel). 
 
EDF will Increase its Capital and... 
------------------------------------ 
3.  On October 25, Finance Minister Thierry Breton and 
Industry Minister Francois Loos presented the main technical 
modalities of the increase in EDF's capital, France's 
largest to date.  Breton said that EDF would raise a maximum 
seven billion euros by selling up to 287 million shares.  He 
stressed that, apart from shares reserved for EDF's 
employees, the sale will benefit the company only.  The 
Government will raise no funds for itself, directly or 
indirectly, from new share sales to the public under this 
"capital opening." 
 
... the Government will Sell Shares to EDF Employees 
--------------------------------------------- ----- 
4.  The August 11, 2004 law that paved the way for EDF's 
partial privatization, made an exception to the August 6, 
1986 law on technical modalities of privatizations, raising 
from 10% to 15% the number of shares reserved for EDF's 
current employees, former employees and others such as those 
who have worked at least five years for EDF, or those who 
have worked in one of EDF's subsidiaries in which the 
company holds more than 50% of capital, and employees 
working in EDF-GDF mixed units.  The sale of Government 
shares in EDF to employees is expected to result in one 
billion euro in proceeds for the government. 
 
The Government will Keep a 85% Stake 
------------------------------------ 
5.  The government will keep a minimum 85% stake in EDF, 
much more than required by the August 2004 law that 
stipulates that the government maintains at least a 70% 
stake in the company.  The government has gone much further 
than 70% to calm union anger, and pledged to maintain long- 
term control of EDF (septel). 
 
Employees, Individuals and Institutional Investors 
--------------------------------------------- ----- 
6.  Based on EDF internal information, as a clear 
inducement, EDF employees will benefit from a 20% discount 
on share price proposed to individuals.  Thirty five percent 
of shares will be offered to other individual investors. 
Individuals will get a discount on the introductory price of 
the share, and will not pay banking fees ("frais de garde") 
in the first 18 months following the purchase.  The 
government objective is to have EDF's employees and 
individual investors accounting for more than 50% of new 
shareholders. 
 
7.  Around half the shares will be opened to institutional 
investors.  Breton invited foreign investors to participate 
in the sale, saying he supported a vision of French economic 
policy he termed as "patriotism is not protectionism." 
 
EDF will be Listed by November 21 at the Latest 
--------------------------------------------- -- 
8.  The initial public offering of EDF's shares will start 
on October 28 subject to the setting of legal details, which 
are not expected to cause a delay.  Breton plans for EDF to 
be listed by November 21 at the latest.  The sale would 
price shares at about 24 euros, valuing EDF at about 47 
billion euros.  Breton indicated that EDF was expected to 
have debts of 20 billion euros, and the capital opening will 
allow the company to pursue its "ambitious investment plan" 
of 40 billion euros over 2006-2010 years (septel). 
 
Comment 
------- 
9.  Under pressure from unions, the government had to keep a 
higher-than-70% stake in EDF.  Increasing the company's 
capital rather than opening the capital by selling existing 
shares was the only way to allow the government to keep a 
substantial stake in EDF, calm the unions and get fresh 
capital to fund ambitious investment plans.  End comment. 
Stapleton