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France Tel. in debt jam
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September 6, 2001: 7:28 a.m. ET
Shares fall to a year's low on concern over telecom company's debt mountain
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LONDON (CNN) - France Telecom stock dropped sharply to a new low for the year amid concerns over the company's mountain of debt.
Shares in France Telecom (PFTE) slumped 5.2 percent to  30 in Paris on Thursday morning. The company said late the previous day its net debt at the end of June stood at 65 billion ($58 billion).
 The burden of paying interest on all that debt, and costs linked to the acquisition of data network operator Equant, the Paris-based company to a 49 percent drop in first-half profit, which came in at 1.95 billion, compared with 3.8 billion a year earlier.
Chief Financial Officer Jean-Louis Vinciguerra at a news conference after the Paris market closed on Wednesday said France Telecom no longer expects to keep an earlier promise of reducing debts to between 30 billion and 40 billion.
Vinciguerra now aims to trim borrowings to between 37 billion and 47 billion in 2003.
France Telecom, the county's dominant phone company, spent more than $50 billion on acquiring wireless unit Orange, data network operator Equant and Internet service provider Freeserve.
The company is the biggest wireless phone operator in the UK and France. To maintain that position it spent further billions buying licenses to provide high-speed cellphone licenses in auctions across Europe.
France Telecom is not alone in its need to reduce levels of debt. Deutsche Telekom (FDTE) plans to cut its 65.5 billion to 50 billion by the end of 2002.
Both companies have seen their market value fall more than 85 percent since March 2002.
France Telecom shares this week lost their place in the widely watched DJ Stoxx 50 index of top European companies this week. The falling price of its stock is eroding the company's wealth in another way – because France Telecom holds 98 million of its own shares.
Vinciguerra said the company had no intention of selling its holding until the stock price improved to between 70 and 100, but said it was in talks to sell a 10.8 percent stake in STMicroelectronics, Europe's biggest chipmaker, to France's state-owned nuclear agency CEA-Industrie. The stake is currently worth 3.5 billion.
Other assets up for sale include a 2.0 billion stake in U.S. wireless group Sprint PCS (PCS: Research, Estimates), 1 billion of shares in cable company Noos and between 3 billion and 5 billion worth of real estate.
 To the company's embarrassment, its recently floated Orange wireless unit now has a market value of about 36 billion – exceeding France Telecom's current market capitalization by 1 billion. Orange is 85 percent owned by France Telecom.
The parent company's stock price is
nearing its life low of 28.5 hit on October 28, 1997, the same month it was floated at 27.75.
Orange said on Thursday its first-half operating profit tripled to 819 million ($728 million) as its customer base swelled by 52 percent. Last week, Orange said earnings before interest, tax, depreciation and amortization (EBITDA) rose 80 percent to 1.6 billion, well above analysts' forecasts for a 50 to 70 percent rise.
That increase in Orange's EBITDA - a measure of profitability often used to assess heavily debt laden companies – contributed to France Telecom's 14 percent rise in first-half EBITDA to 6.07 billion.
France Telecom Chairman Michel Bon told the news conference he expects full-year 2001 sales to increase by 25 percent, with EBITDA again seen rising by a 14 to 15 percent. 
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