Alstom cash call is just first stop on rescue ride
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Pierre Briancon
LONDON, May 8 (Reuters Breakingviews) -Henri Poupart-Lafarge may have found a way back into shareholders’ hearts. The CEO of struggling 6 billion euro French train maker Alstom ALSO.PA on Wednesday unveiled a 2 billion euro plan to cut debt and maintain its investment-grade credit rating. The capital increase is smaller than it could have been, thanks to some financial engineering. Poupart-Lafarge can now focus on generating cash.
Poupart-Lafarge spooked shareholders in October last year when he flagged that the company would burn 500-750 million euros of cash in the financial year to March 2024. The Alstom CEO then remained fuzzy about a capital hike before conceding in November that disposals alone might not suffice.
Several stops later, Alstom investors have some clarity on where they are heading. Poupart-Lafarge on Wednesday announced a 1 billion euro rights issue, supported by key shareholders Caisse de dépôt et placement du Québec and Bpifrance. The capital hike is supplemented by a 750 million euro hybrid bond, which rating agency Moody's Investors Service said it will treat as half equity. In addition to 700 million euros of announced business disposals, the plan will be enough to maintain Alstom’s investment-grade credit rating. Shares rose 2% on the news.
Poupart-Lafarge can now look ahead. He’s off to a promising start. Alstom only burned 557 million euros of cash in the last fiscal year, at the lower end of its initial guidance thanks to a better order book. Alstom plans on generating free cash flow of between 300 million euros and 500 million euros in the 12 months to March 2025. The hybrid bond, which Alstom can call after five years, is meant to signal that the problems are merely temporary.
Alstom operates in a thriving industry, boosted worldwide by major investments in low-carbon transport infrastructure. It is the global leader in this market outside China. It was hit last year by headwinds including the legacy of the 2021 acquisition of the train assets of Canada’s Bombardier. But those issues should pass. If Poupart-Lafarge’s balance-sheet fixes hold, shareholders may find a reason to jump onboard.
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CONTEXT NEWS
French train maker Alstom on May 8 outlined plans to shore up its balance sheet, including a 1 billion euro rights issue supported by its two main shareholders Caisse de dépôt et placement du Québec and Bpifrance.
The plan also involves issuing 750 million euros of hybrid bonds, which rating agency Moody's Investors Service has agreed to treat as 50% equity, and 700 million euros of already announced asset sales.
The company said that Moody's had reaffirmed its Baa3 credit rating, and that the outlook would be changed to stable from negative if the plan is successfully implemented. Moody’s Baa3 score is equivalent to BBB- for the other agencies, and is the lowest rating category that is considered investment-grade rather than speculative.
Its shares were up 2.1% to 15.98 euros as of 0944 GMT on May 8.
Alstom share price under CEO Henri Poupart-Lafarge https://reut.rs/3ylbgAI
Editing by Liam Proud and Streisand Neto
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