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Capital Markets

Breakingviews: French treasury looks to offload its telecom shares

www.breakingviews.com

The privatization of France Telecom is looming. A bill allowing the state to sell down its stake to a minority holding is expected to become law in February. And the cash-strapped government badly needs privatization receipts. The company's shareholders face being swamped with a deluge of new stock this year or, worse, a more complicated strategy.

The French government has several incentives for privatizing France Telecom. France is running a huge budget deficit. And even if privatization receipts don't count towards cutting deficits under EU accounting rules, they provide much-needed income.

Moreover, France Telecom looks to be finance minister Francis Mer's most dependable source of income. Selling 10% of the company would raise €5 billion at current market prices. Other government stakes are far less promising. Air France is small beer, for instance, and utility group EDF (Electricité de France) might not be ready for sale until 2005.

Privatizing France Telecom would also demonstrate that last year's bail-out of the group was a success. In April the state invested e9 billion in the company's rescue rights issue. Now it is sitting on a mark-to-market profit of €4.3

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