October 23, 2012 / 7:47 AM / in 7 years

UPDATE 2-Veolia to cut transport JV stake to reduce debt

* Stake in Veolia Transdev will fall to 40 pct

* CDC stake will rise to 60 pct

* Complex deal will reduce Veolia exposure to JV’s debt (Adds analyst comment, detail, background)

By Elena Berton

PARIS, Oct 23 (Reuters) - French utility Veolia Environnement will cut its stake in transport joint venture Veolia Transdev in a first step towards withdrawing from the business as it battles to reduce its debts.

The waste and water group said on Tuesday it was in talks to cede control of the venture to its partner, state-owned Caisse des Depots et Consignations (CDC), cutting its stake to 40 percent while CDC lifts its holding to 60 percent.

Pending a final agreement, the deal will allow Veolia to reduce its exposure to the venture’s debts and leave open the possibility of eventually selling out of the business.

Debt-laden Veolia is restructuring and exiting businesses and countries as Chief Executive Antoine Frerot reins in much of an expansion plan undertaken by founder and former CEO Henri Proglio in a drive to cut debt and return the group to growth.

Veolia put its 50 percent stake in Veolia Transdev up for sale in December as part of a plan to shed 5 billion euros in assets and cut its borrowings to below 12 billion euros from 14.7 billion euros last year.

However, a sale became fraught with difficulties as CDC rejected offers from potential buyers, including Cube, an investment fund owned by French bank Natixis.

The plan to reduce its stake was “not the perfect exit ... but the agreement will allow Veolia to deconsolidate some of Transdev’s debt,” Bank of America Merrill Lynch analysts said.

Veolia’s shares, which have lost around 20 percent of their value in the last 6 months, were down 2 percent at 1350 GMT.

In a complex proposal, Veolia and CDC will subscribe to an 800-million-euro ($1.1 billion) capital increase by converting shareholder loans. Veolia Transdev will also look to sell some assets and refinance some of its bank loans.

“These operations would increase Veolia Transdev’s financial flexibility and enable it to prioritise repayment of the shareholder loans made by Veolia Environnement,” Veolia said in a statement. These total 800 million euros, a spokeswoman said.

Veolia includes half of Transdev’s 1.8 billion euros of debt on its books, including the 800 million loan.

Veolia would also buy Veolia Transdev’s 66 percent stake in ferry operator SNCM for an undisclosed sum before CDC takes control of the joint venture, as previously announced.

The removal of SNCM, in which the French government holds a 25 percent stake, from Transdev’s books was expected to make Transdev easier to value and facilitate the sale of Veolia’s stake.

$1 = 0.7651 euros Reporting by Elena Berton; Additional reporting by Caroline Jacobs in Paris; Editing by Mark Potter

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