'No public plans' for France Telecom

Chief Executive Michel Bon insists he will not resign despite France Telecom's debt being cut to one notch above junk status

PARIS, France (CNN) -- The French government says it is not considering renationalising embattled France Telecom for now.

"We unequivocally deny renationalising France Telecom," Cynthia Odsi, a Finance Ministry spokeswoman, told CNN on Monday. She declined to comment further.

Earlier, a government spokesman was quoted as saying the government may consider taking back ownership if market sentiment for the country's dominant phone company does not improve.

"We are contemplating a renationalisation if market sentiment does not improve," a finance ministry spokesman told Reuters in response to an article in the Financial Times. "We are very concerned about France Telecom."

France Telecom's stock, which has been in meltdown amid concerns about its 61 billion euro debt mountain, soared 11.1 percent to 10.48 euro in early Paris trading on Monday. It was once valued at 250 billion euros at the height of the telecom boom in March 2000, but now is worth close to just 10 billion euros.

The politically controversial plan could be a "defensible" solution to the heavily-indebted company's crisis of confidence with the capital markets and would be preferable to a huge rights issue at the current deflated share price, the Financial Times said.

France Telecom needs to raise additional money to cut its debt, otherwise credit rating agencies could cut the debt rating to junk bond status, triggering millions in extra interest payments.

It would be cheaper for the French government to buy the 44.5 percent stake in France Telecom, which is currently valued at 4.5 billion euros, than to contribute as much as eight billion to a 10-15 billion euro to the sale of new shares to shareholders.

Prime Minister Jean-Pierre Raffarin decision, if it comes, to renationalize France Telecom is likely to be scrutinized by the European Union's competition officials.

The company's stock price decline has become a political issue in France, where many people have invested in it since privatisation. France Telecom's stock has dived almost 80 percent this year to 9.43 euros from the October 1997 share offer price of 27.75 euros.

The French government would have to spend 6 billion euros to buy out France Telecom's minority shareholders out, Mark James, analysts at Nomura International, said in a note to investors.

"At first glance that looks slightly less costly for the French government than contributing its 50 percent share in [say] a 15 billion euro rights issues [sale of shares to exiting shareholders].

"But we reiterate our view that France Telecom needs more equity and less debt. We still believe the company is struggling to generate enough cash flow to fund its providers of capital, and our forecasts are for its debt burden to rise over the next two years rather than fall.

"We expect many options to be explored, of which this is undoubtedly one. But show us the money -- the French government may offer to buy FT [France Telecom] shares; it may not. And if it does so, what will it offer?"

Paris-based France Telecom , like its European rivals, has seen its stocks crumble under the pressure of debts accumulated through betting on high-speed wireless services and acquisitions. France's dominant phone company spent more than $50 billion on acquiring wireless unit Orange, data network operator Equant and Internet service provider Freeserve.