France Faces Calls to Sell Part of $57 Billion Stock Portfolio Amid Debt Concerns
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Loading... - Edgar Ellis
- 16 Oct 2024
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As France grapples with a growing debt crisis, there are increasing calls for the government to consider selling part of its substantial €52 billion ($57 billion) stock portfolio instead of raising taxes. This proposal has gained traction following comments from Gerald Darmanin, a former budget minister under President Emmanuel Macron, and insights from investment research firm AlphaValue.
France's APE (Agence des Participations de l'État) shareholding agency holds stakes in various strategic companies, including defense contractors Thales SA and Safran SA, as well as automaker Renault SA and lottery operator FDJ. The new Prime Minister, Michel Barnier, recently unveiled a budget plan that includes €60 billion in spending cuts and tax increases but did not mention the possibility of selling state-owned shares.
Pierre-Yves Gauthier, president of AlphaValue, expressed surprise at the lack of movement towards divesting these holdings, especially given the current economic climate. The French Parliament is currently embroiled in contentious budget discussions, and the idea of selling shares could ignite further political debate.
France has a long-standing tradition of interventionist policies, maintaining a firm grip on strategic industries and major employers. Many lawmakers are likely to oppose any moves to relax this control, fearing the implications for national interests and employment. The Finance Ministry, which oversees APE, has not commented on the proposal.
Darmanin highlighted specific APE holdings, such as FDJ and telecom operator Orange SA, suggesting that selling these stakes would be preferable to increasing corporate taxes. He argued that the state should not be involved in these sectors, emphasizing the need for a more market-oriented approach.
Gauthier further argued for the liquidation of all shares, pointing out the high premiums investors currently demand for French sovereign bonds. He contended that divesting would send a positive signal to global markets, demonstrating a commitment to addressing France's financial challenges.
While a one-time cash inflow from selling shares could provide immediate relief, it would not resolve France's underlying structural financial issues, such as high public spending on services like healthcare, elevated tax rates, and a growing budget deficit. Under European Union regulations, one-off revenues do not contribute to deficit reduction, complicating the situation further.
Eric Meyer, head of RBC Capital Markets in France, acknowledged that there is a case for trimming some state holdings during times of financial stress. However, he noted that various constraints limit the feasibility of such actions. For instance, the French government has governance agreements with companies like Airbus SE, requiring it to maintain a certain level of ownership. Additionally, selling shares would mean forfeiting a lucrative stream of dividends; APE reported receiving €1.6 billion in dividends from listed companies last year.
There is also the risk of selling shares at a market low, which could diminish the potential proceeds from any divestment. Meyer suggested that achieving proceeds above €2 billion to €3 billion would be a significant challenge.
In contrast to the idea of selling stakes, many politicians in France believe that public sentiment favors state intervention, particularly in light of recent crises, including the pandemic and the energy price surge caused by the war in Ukraine. Alexis Zajdenweber, head of APE, noted that the succession of crises has reinforced the legitimacy of the state as a strong and stable shareholder.
In a recent example of France's inclination to invest rather than divest, the government is considering acquiring a stake in the consumer health business that drugmaker Sanofi is negotiating to sell to U.S. buyout firm Clayton Dubilier & Rice.
As France navigates its financial challenges, the debate over whether to sell part of its $57 billion stock portfolio highlights the tension between fiscal responsibility and the desire to maintain state control over strategic industries. While divestment could provide a temporary financial boost, the long-term implications for public policy, market confidence, and national interests remain complex and contentious. The outcome of this debate will likely shape France's economic landscape in the years to come.
