Macron Wants to Make Privatization Great Again
(Bloomberg Opinion) -- Putting state assets into private hands was the boring consensus of the 1990s; now, it's only for the brave. In Britain, Jeremy Corbyn is tapping into public anger at the poor quality of private railways and utilities, and promises to re-nationalize them. In Italy, the deadly collapse of a motorway bridge has led the government to try and revoke the concession held by its private-sector operator.
It now falls to France, of all places, to make the positive case for as much as 15 billion euros ($17 billion) of privatizations planned for 2019. With President Emmanuel Macron's haughty style alienating the public and a ministerial reshuffle expected imminently, it won't be plain sailing.
France has good reason to trim the size and scale of its 100 billion euros of company holdings. Government debt is close to 100 percent of GDP and the country is running a near-3-percent budget deficit. Proceeds from asset sales could be used to cut debt or spent on other projects.
Macron's three headline deals – selling electricity company Engie SA, an IPO of lottery firm La Francaise des Jeux, and turning airports operator Aeroports de Paris into a private concession – aren't so obviously controversial. They're not in the union-dominated businesses of rail and mail, and aren't critical to national security. A series of embarrassing cost over-runs at nuclear reactor maker Areva SA has also helped dim the patriotic glow around state-run firms.
Most of the complexity surrounds ADP, the biggest and most sensitive part of the program. Its market value is just shy of 20 billion euros, and the state owns just over half. Opposition politicians, even those ideologically in favor of rolling back the state, are already warning about the identity of the future buyer, the terms of the sale, and the risks of lax regulation or under-investment.
The desire to get the best price will have to be tempered by politics: ADP is unlikely to go to a Chinese buyer or another who isn't French; the government will retain a golden share, and the conversion of the firm into a 70-year concession will require existing shareholders to be compensated.
That doesn't mean the asset will be sold for a pittance. Barclays analysts estimate the average sale of an airport since 2010 has valued the operator at about 14 times Ebitda. Based on that multiple, ADP has a valuation of about 25 billion euros, or about 25 percent more than its current market value. Even if you lop off 10 percent because of the shorter list of bidders and complexity of the deal, the state would still net about 11 billion euros from the sale. These are frothy times for infrastructure deals, with global investment funds keen to put money into assets with long-term cashflow, and the French capital is the kind of travel hub that will pull in much demand.
A lot still hinges on Emmanuel Macron's talents as a former banker and proud reformer to carry along public opinion and silence opposition critics. This is where the unknown lies: his imperious governing style has led to the departure of three ministers in as many months, and his popularity with the public is at a record low. His diminishing political capital and slowing economic growth could derail the program. Even so, he has also proven he can carry out big and unpopular reforms – taking on the rail unions in the process. He still has a comfortable parliamentary majority.
France was never a radical privatizer, and Paris' airports won't be the next Heathrow. If valuations remain high, ADP will be sold to a consortium led by an obvious domestic candidate like Vinci SA at a premium. Setting tough terms for the concession should keep the risk of bad management and under-investment under control. But politics is febrile, and even a sensible privatization plan may see a bruised Macron bite off more than he can chew. The “Mozart of finance,” as he was once dubbed, has a lot of bum notes to avoid.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Lionel Laurent is a Bloomberg Opinion columnist covering finance and markets. He previously worked at Reuters and Forbes.
©2018 Bloomberg L.P.