TheChek News Flow

The second round of the legislative session is held in France tomorrow, withEmmanuel Macron leading the polls with ease after winning Le Pen in the presidential elections and beating in the first round on 11 June. Since the result seems obvious, I will not bother you with redundant arguments. However, I want to talk about the mechanics of the state's shares of the Gallic state and the repercussions that the arrival of the young President of the Republic can undertake.

The new government in France, with a more liberal character, I think could lead again to the reopening of the controversy about whether or not the Executive has an investment portfolio as it currently has.

Said holding company is valued at about 80,000 M¤. In this list of companies we find 12 names where the French Government is present through its sovereign fund ( FSI ), the French banking system or through various financial arms ( CDC and BPI ).

Our estimations suggest that between 50 and 60 bn¤ could be sold, even counting with EDF and ENGIE , although for the latter it would be necessary to modify the current legislative system. A breakthrough in this sense, would be seen by the market as a positive signal, even though it does not serve him too much to reduce the debt of 2.2 Tn¤. Given that this new government comes with new ideas, I am of the opinion that soon we will begin to see these positive signs with a special wink both to the market and investors.

In fact, one of the governmental companies in charge of the management of state shares, Bpi France , announced a few weeks ago the sale of 5.67% of the construction and concessionaire EIFFAGE . The history was one of those that are not forgotten. In its day Eiffage had to defend itself of a hostile attempt of purchase on the part of the Spanish SACYR . One of the most remembered cases in the market in which the workers came to the rescue of his company. The presence of the French Government, both in its shareholding and on the other side of the table when granting concessions, made its role very contradictory, as we have so often criticized since AlphaValue.

If you think so, let's go on a case by case basis:

EDF: For the French utility , if it were not for the support of the Executive, it would have been almost impossible to find the necessary financing to continue its activity, since both the long-term obligations in its pension plans and the costs of Dismantling of their nuclear plants, would have been insurmountable slabs to deal with their current structure of cash flows. The 84% of government participation guarantees its future and hides the financial disaster with which it coexists. The progressive sale of the part that can be sold (since there is a large part that can not legally), is the only viable way out with which to try to stop the gigantic losses that it drags.

* CNP: The French life insurer plays with the particularity that it does not need to have a distribution network, since its products are sold through its savings bank ( Caisses d'Epargne ) and its Treasury offices. The French also has presence in Brazil, Italy and Spain. In this sense, we do not see the need for the government to keep the insurer under its umbrella, hence we see it as one of the clearest options for divestment.

* ORANGE: Nor does it make sense here that the State controls 27% of the capital. The business is competitive enough that it can be managed without state protectionism. To this must be added the opposition that has always shown Brussels to any type of state intervention in this area. Therefore the participation in Orange could also be sold without problems and with luck this way to facilitate the consolidation of the sector in France. It should be remembered that last year the operation between Orange and BOUYGUES subsidiary Bouygues Telecom was cut short. It has even been speculated that both Orange and ILIAD would have held talks to share their assets.

* ENGIE: The old Gaz de France seems to have recovered something of value since it has begun its turn towards the business of renewable energies and environmental services. But in this case, the gas is tied hand and foot due to the law that obliges the state to have a third of the capital, in addition to the gold action. The most beneficial would be a legislative change, although we see something utopian due to the few political benefits that would entail. Although gold action is banned in the EU, it seems that France has its own "golden share" in Brussels. But apart from protecting the local industry, what it does is being inefficient and uncompetitive.

* AIRBUS: Another clear example of easy and justified divestment. The management of the aerospace manufacturer and defense equipment has demonstrated over the last few years how competent it has been. It would even be much more without the presence of governments, both German and French.

* PARIS AÉROPORT: The airport operator has a regulated business whose framework is imposed by the Government itself. We do not see the need for the Executive to remain here, there would even be a clear candidate like VINCI who would fit that participation perfectly, given that he currently holds 10% of Paris Aéroport voting rights and has increased in recent years Portfolios of airport concessions.

* THALES: Strong exposure to the defense sector makes participation a sensitive issue. But it has been seen that, while preserving the golden share , it is sufficient to maintain the interests of the Government in defense matters. For this reason we believe that here too the new executive should sell the 27% he owns in the capital.

* PEUGEOT: It is true that the Government gave in its day the necessary financial support to solve the different financial problems. But today we believe that the time has come to propose the exit of 12.9% of the capital.

* EUTELSAT: Another story where we do not understand well the presence of the State in the shareholder. It could have made sense years ago, when the project emerged as an intergovernmental operation. But today, when the sector has developed remarkably and has become a much more competitive, we do not believe that any kind of protection is necessary. The current state presence reaches 25.6%.

* AIR FRANCE-KLM: The airline is the perfect example to see how things can go worse and worse when a government acts not only as a shareholder, but also as the person in charge of appointing management positions. To this must be added the open confrontation with the unions. It becomes necessary and urgent that the Executive disposes of the 17.6% that it has in the airline.