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Wednesday, 4 December, 2002, 23:15 GMT
France Telecom in 9bn-euro bailout
France Telecom payphone
France Telecom splurged too much during the boom years
The French Government has confirmed that it plans to advance a massive loan to France Telecom, the country's struggling former telephone monopoly.

The French finance ministry said the government would lend the company 9bn euros (5.7bn; $9bn) to help it out of a financial crisis brought on by debt-fuelled expansion during the late 1990s telecoms boom.

France Telecom plans to raise a further 6bn euros from the financial markets once the loan is in place.

In return, the company will be required to use its own cash reduce its debts by 15bn euros within the next three years.

The finance ministry added that the French government may, if necessary, give up its majority share in the company.

State aid

The finance ministry said the refinancing strategy was "ambitious and realistic," describing it as "a cornerstone in the recovery of the company."

The government loan, which is to be repaid at market rates, will be advanced by a state holding company, ERAP.

ERAP will take over the goverment's 55% stake in France Telecom.

The use of ERAP as an intemediary is seen as a way of getting around European Union regulations banning direct government subsidies to industry.

The plan requires the approval of EU state aid authorities before it can proceed.

Job fears

Separately, trade union groups, who met with France Telecom chief Thierry Breton on Tuesday, said the firm had no plans to sell off subsidiaries such as mobile operator Orange or internet service provider Wanadoo.

The trade unions were also quoted in the French media as saying there would be no lay-offs over and above the 20,000 jobs that are due to disappear through early retirement between 2003 and 2006.

Plans to trim France Telecom's workforce are complicated by the fact that three quarters of its 140,000 employees are civil servants, with legal protection against redundancy.

Mr Breton, brought in to turn the company around two months ago, presented the refinancing plans to the France Telecom board on Wednesday afternoon.

He is due to formally unveil the rescue package on Thursday.

Crisis point

The bailout is designed to prevent France Telecom from defaulting on a 15bn-euro debt repayment that falls due next year.

The firm is thought to be the world's most indebted company with total borrowings of about 70bn euros.

It racked up its debts in an acquisition spree which saw the firm buy stakes in a range of European telecoms firms including Orange, Mobilcom and NTL.

The firm initially prospered, reaching a market valuation of about 224bn euros at the height of the telecoms boom in March 2000.

But the value of France Telecom's assets plummeted when the telecoms bubble began to burst two years ago, triggering a steep slump in its share price.

The firm posted the second biggest loss in French corporate history earlier this year.

The BBC's Angela Garvey
"There is concern that orange could simply be used to help France Telecom out of a mess"
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