France Relaunches Its Mid-'80s Privatization Push
Paris plans to use proceeds to help balance its budget
BONJOUR privatization. Goodbye dirigisme.
France, the country with the second-largest public sector in Europe, is putting a end to its decades-long practice of state control.
This fall, four French companies are expected to go on the auction block. Among them: the country's second-largest bank, and a huge chemical company. Seventeen other government-owned companies will follow.
Dirigisme is making a long goodbye. Prime Minister Edouard Balladur first started the process in 1986, when as finance minister he privatized 12 major companies.
The 1987 stock market scare and a change in government halted the program. Now back in charge, Mr. Balladur is pushing forward the most ambitious of the many privatization plans being hatched in the capitals of Western Europe.
"The France program is more advanced than the others," says Florent Brones, chief investment strategist for Soci Grale. But "everyone in Europe is of the same mind."
In all, the government could raise about 400 billion francs [$67 billion] from the companies it sells.
On July 21, the French government announced the first four of those companies: Elf-Aquitaine, Banque Nationale de Paris, Rhone-Poulenc, and Banque Hervet.
These are easy targets. With the exception of the small Banque Hervet, which will be sold to a private concern that already owns one-third of its shares, all these companies are profitable. They are internationally known. And they already have shares quoted on the stock market or, at least, investment certificates.
Beyond these first four companies, the picture looks less enticing, however. Nine of the 17 companies posted losses last year. Renault, which earned a profit last year, will almost certainly be in the red this year thanks to the slump in European auto sales. Two of the larger insurance companies on the privatization list - UAP and AGF - saw their profits shrink considerably last year. They are now said to be in a fragile recovery.
Since the question of privatization involves at least as much politics as economics, many of the companies steer clear of the question.
Banque Nationale de Paris? "We don't comment at all," says a spokesman.
"It's not even `no comment,' " adds a spokesman at Thomson, the troubled state-owned electronics firm. "On that subject we have absolutely nothing to say."
Groupe Bull, a proposed target of privatization, has lost $2.5 billion in the last three years. "We expect to be back in balance by '95," says Bull spokesman Patrick Marx.
Air France, another prospect for privatization, also lost money last year. And "1993 and 1994 will not be profitable," says Marie-Clotilde Debieuvre, an Air France spokeswoman. The key question, however, is how much of the stock the government is willing to give up at a time when major airlines are consolidating. Sentiments still run strong in France in favor of a national carrier.
Even the Balladur government is stopping short of absolute liberalization.
On July 25, the government said it would retain a "golden share" in Elf-Aquitaine. A golden share is a class of stock that overrides all other shareholders. It is primarily intended to block foreign takeover of the largest oil company in France, which imports virtually all its oil.
There are some drawbacks.
"It does mean laying off people," says Paul Horne, international economist with Smith Barney, Harris Upham & Co. in Paris. "And that is going to be very unpopular electorally."
A sour economy and high unemployment next fall will probably hurt the French conservatives in the 1995 elections.
"But they are willing to pay that price to move the privatization forward, because the advantages far outweigh the costs," Mr. Horne says. The government will get the cash from the sale. It will be able to take some troubled assets off its books. Horne estimates France is running a budget deficit of $68.7 billion to $71.2 billion (counting off-budget items) - about 6 percent of the country's gross domestic product.
Companies should also benefit from privatization. They will find it easier to get capital from the private markets than from the government, Mr. Brones says. Eventually, the program will greatly increase the capital flowing through the French stock exchange. Brones's Soci Grale, itself successfully privatized in 1986, estimates that European companies represent about 40 percent of the world's private sector but only about a quarter of the world's stock. That will change as France and other European count ries shed their state-owned firms.