UPDATE 3-Bouygues takes $1.9 bln write-down on Alstom stake

Mon Feb 17, 2014 3:57pm EST

* Lowers value of Alstom stake by 31 pct

* Move raises questions over future of holding

* Alstom shares down 37 pct in past 12 months

* Train and turbine maker has cut cash flow targets

* Bouygues has said it's keeping options open on stake (Adds government concern, Alstom comment)

By Natalie Huet

PARIS, Feb 17 (Reuters) - French conglomerate Bouygues will write down the value of its stake in train and turbine maker Alstom by 1.4 billion euros ($1.9 billion) to reflect its weaker cash flow forecasts and depressed market value.

The move cuts the stake's value in Bouygues' balance sheet by about 31 percent to 3.08 billion euros. It will appear in fourth-quarter financial statements and will have no impact on Bouygues' cash position or operating performance, the construction-to-telecoms conglomerate said on Monday.

Alstom cut its forecasts for free cash flow and operating profitability last month because of weak orders for power equipment, raising the spectre of a dividend cut and sending its shares tumbling.

Alstom's woes have sparked concern within the French government, which hired consultants several months ago to study the group's position in its different markets and strategic options, according to a report on Les Echos website on Tuesday.

"Alstom is not on the brink, but the company needs to make strategic decisions for its future," a government source told les Echos. Options could include deals or the state taking a stake in Alstom via a capital increase.

A spokeswoman for Alstom declined to comment on the report, but said a capital increase was not on the table.

A spokeswoman for France's industry minister also declined to comment.

OPTIONS OPEN

Bouygues pumped 2 billion euros into Alstom in 2006 when it took over a 21 percent stake that the French government had acquired to rescue Alstom from near-bankruptcy a decade ago.

Bouygues then gradually raised its stake to the 29.4 percent stake it now holds.

As Europe's economic weakness has deepened, Alstom has struggled with lower demand for the huge turbines and other components it supplies to coal and gas-fired power stations. The train business has held up better and secured record orders.

The dearth of turbine orders has punched a hole in Alstom's balance sheet and brought its debt within a notch of "junk" ratings. To raise cash, Alstom has put up for sale a minority stake in its transport division, which makes France's prized high-speed TGV trains.

Analyst said a writedown was expected given the slump of more than 37 percent in Alstom's shares in the past 12 months.

Before the writedown, Bouygues valued its 29 percent stake at 4.4 billion euros, or about 67 percent of Alstom's current market capitalisation. The writedown brings that to 46 percent.

"It's still a little rich, but I guess they're taking a view that over the longer term cash flow will recover and so will valuation," said Nomura analyst Daniel Cunliffe.

"The real question is whether Bouygues will be happy with a dividend cut, which I think is inevitable, and whether this is a writedown in preparation of a sale."

Bouygues declined to comment on whether it might be preparing to offload its stake.

Espirito Santo analyst Rob Virdee said he could not imagine Bouygues selling up any time soon. "I don't think they are very happy about where Alstom is at the moment, but my feeling is that when you've invested so much already, it's very hard to walk away," Virdee said.

He noted Alstom had tried hard lately to appease its main shareholder, refraining from cutting its dividend and pursuing non-strategic asset disposals rather than raising fresh equity.

In November, Bouygues said it was keeping its options open regarding the stake, but welcomed Alstom's planned restructuring, which involves 1,300 job cuts and up to 2 billion euros in asset sales.

Bouygues Chief Financial Officer Philippe Marien told analysts at the time that Bouygues was "not rigid" with its investment in Alstom and would look at how the market and Alstom's business evolve to make a decision in the longer run.

Bouygues shares closed down 0.8 percent to 29.99 euros, while Alstom's closed 0.2 percent higher to 20.97 euros.

Bouygues will release its annual results on Feb. 26. ($1 = 0.7307 euros) (Additional reporting by Gwenaelle Barzic and Gilles Guillaume; editing by Andrew Callus, Tom Pfeiffer and David Evans)