PARIS French conglomerate Bouygues (BOUY.PA) will write down the value of its stake in train and turbine maker Alstom (ALSO.PA) 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 specter of a dividend cut and sending its shares tumbling.
Bouygues is Alstom's largest shareholder with a 29.4 percent stake. It will release its annual results on February 26.
Shares in Bouygues were down 0.5 percent at 1158 GMT. Alstom was up 0.3 percent, giving it a market value of about 6.5 billion euros. 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 capitalization. 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. Representatives of Alstom were not immediately available for comment.
Alstom has been securing record orders for trains and trams, but demand for the huge turbines and other components it supplies to coal and gas-fired power stations has waned.
The dearth of orders has punched a hole in its 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.
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. 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.
(Corrects to read that analyst Rob Virdee is of Espirito Santo, not Nomura)
($1 = 0.7307 euros)
(Additional reporting by Gwenaelle Barzic; editing by Andrew Callus and Tom Pfeiffer)