EU Threatens France's Plans to Save Alstom

The French government's plans to rescue Alstom by taking a 30% stake in the engineering group via a rights issue yesterday threatened to bring it into conflict with EU competition authorities.

Alstom is expected to announce as early as today a refinancing deal - prompted by government intervention - with its banks over its €4.9bn (£3.5bn) debts, enabling its €600m capital increase to go ahead.

The group's board, which has been selling off core businesses to stay afloat, met again last night after telling its bankers: "It's make your mind up time," sources said. The banks had refused to act without government guarantees.

The deal, which would see the French state contribute up to half the rights issue, ran into trouble in Brussels where the European commission said it had serious doubts about its legality.

Mario Monti, EU competition commissioner, even phoned French finance minister Francis Mer to demand that any rescue package be submitted for his scrutiny at the earliest opportunity.

Mr Mer, ironically masterminding a series of state sell-offs to help finance France's heavy budget deficit, agreed to do so.

Mr Monti can block any state aid to companies which he deems to be unfair and is already investigating a €9bn credit line to France Telecom.

The commission was sceptical, a spokesman said, whether a profit-driven private investor would have behaved in the same way as the French state and wanted to establish whether the move constituted illegal state aid or whether the French government had "other motives". He said the test would be whether the French state expected a market return on its investment. Alstom has lost 90% of its value in the past two years.

"The company is facing a liquidity issue and a strategic business issue in its transport operations which invites careful scrutiny of whether a private investor would have participated in such a capital increase," he said.

Alstom, which sold its turbines business to Siemens this month for €950m in cash and is in talks to sell its power transmission/distribution business to state-owned nuclear power plant builder Areva for around €1bn, employs 30,000 in France.

It is closing its Birmingham-based train-making unit with the loss of up to 1,400 jobs.