France Telecom to take on €7bn of partner's debt

Mr Jean-Louis Vinciguerra, France Telecom's finance director, said the French group, which owns 28.5 per cent of MobilCom, would take over nearly €7 billion worth of the company's debt in a deal with lending banks and equipment providers.

"We assume 85-90 per cent of MobilCom's debt and become their biggest creditor, which should help MobilCom find a solution for its traditional business," Mr Vinciguerra said, adding that the exit from Germany was irreversible.

Mr Thorsten Grenz, MobilCom chief executive, was expected to shut down MobilCom's third-generation (3G) business, possibly resulting in its UMTS mobile phone licence, bought for €8.5 billion in August 2000, returning to the German telecoms regulator.

He could, however, attempt to salvage MobilCom's loss-making reselling business, which markets mobile services from established operators. Freenet, MobilCom's separately listed internet services subsidiary, said it would not be affected.

France Telecom said it had "provisioned fully" for any litigation relating to its decision to abandon MobilCom. It reported a first-half loss of €12.2 billion following charges of €10.8 billion, mostly relating to MobilCom. The French group took a provision of €7 billion relating to its assumption of responsibility for MobilCom's borrowings.

It also wrote off €290 million of shareholder loans. Analysts were concerned, however, that its commitment to bankroll the introduction of 3G services in Germany could expose it to litigation.

Meanwhile, Mr Michel Bon, who has resigned as chief executive, but remains interim chairman until a successor is appointed, said: "France Telecom cannot continue to survive when no one wants to lend us money and, on the contrary, when everyone wants to be paid on the nail. In current markets, the refinancing of our debt is simply out of the question."

Net debt rose to €70 billion at the half-year from €61 billion at the end of 2001. France Telecom's shareholders' equity fell to a negative €440 million, from €1 billion at year-end.

At yesterday's close, France Telecom's market value was about €12 billion less than the €15 billion-€16 billion funding gap it faces next year. - (Financial Times Service)