A 10 percent stake in gas utility GDF Suez, worth about five billion euros ($6.2 billion), could be the first major item on the block in a planned sale of French state assets, sources and analysts say.

The government announced in October it planned to raise between 5-10 billion euros by selling state holdings, using the proceeds to repay debt and reinvest in strategic industries.

The defence sector could be one such target, but ministers have made clear in public that they see the energy sector as first in line.

That has led to speculation that the state could sell down its 84.49 percent holding in EDF, worth some 36 billion euros. By law, the state is required to hold only 70 percent of EDF, which operates France's nuclear reactors.

But a combination of industrial and political considerations makes a disposal of some of its holding in GDF Suez more likely.

"Energy is the most likely sector for further privatisation, but between EDF and GDF, nuclear is more sensitive," said Loic Dessaint, head of shareholder advisory firm Proxinvest.

One government source, who did not wish to be named, said selling stock in EDF, whose reactors provide France with about three-quarters of its power needs, was politically sensitive.

A second government source also confirmed that GDF Suez, which because of its diverse international operations is less of a political hot potato at home, was a more likely candidate.

CLEARING THE HURDLE

There is a hurdle to a GDF stake sale. Under a 2006 law, the state must keep at least one third of the former gas monopoly and it is already down to just 33.6 percent after its sale in June of a 3.1 percent stake for around 1.5 billion euros,

However, that hurdle can be cleared thanks to two new laws.

Without naming GDF, Energy Minister Segolene Royal suggested last month the government plans to use a new law that gives the state double voting rights in state-owned firms to sell stakes while maintaining control.

That law, passed in March, doubles voting rights for shareholders who register shares in their name and hold them at least two years. It also specifies that for GDF Suez, the state does not even have to wait two years to get double votes.

In addition, in a deregulation law presented in cabinet last week and expected to be voted on in early 2015, the government added a clause that exempts the state from having to make a full bid for GDF Suez when its voting rights double.

The second government source told Reuters the clause was aimed specifically at preparing for a GDF Suez stake sale.

Even if the state doubles its votes, it needs to retain a third of all voting rights. That means the state would need to hang on to about 500 million shares, according to Reuters calculations and could sell 300 million shares, or 12.5 percent of GDF Suez stock.

However, the maths is complicated by the fact that other long-term GDF Suez shareholders including Belgium's Groupe Bruxelles Lambert, French state bank CDC and Norway's sovereign wealth fund might also register and double their votes.

As a result, the state could probably sell at most a 10 percent GDF Suez stake, worth about 5 billion euros.

"Ten percent would seem a reasonable estimate," Societe Generale analyst Vincent Ayral said in a note to clients.

Source: uk.reuters.com

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