Train maker Alstom plans €1bn rights issue to trim debt

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Train manufacturer Alstom is launching a €1bn capital raise to help cut its debt, after the maker of France’s high-speed TGVs was rocked last year by a cash flow warning under which it now hopes to draw a line.

The French group, the world’s second-biggest train maker after China’s CRRC, has been seeking to slice €2bn off its debt including through asset sales to avoid a credit downgrade to junk status.

It said on Wednesday it had earmarked €700mn in disposals so far and would issue a hybrid bond, but would now also pull the trigger on a capital raise that analysts had seen as increasingly likely and that Alstom had flagged as a possibility last November.

“There was a balance between opening a window of uncertainty, which we did, but at the same time showing some signs of the implementation of the plan — one was disposals, the other was the ability to achieve our cash target,” chief executive Henri Poupart-Lafarge said of Alstom’s decision to hold fire until now.

In an interview, Poupart-Lafarge said the group was showing the “first proof of this progress”, including free cash looking set to improve over coming quarters, and train deliveries speeding up.

Deliveries had partly caused its cash wobble last year when clients, including some in Britain, dragged their feet on accepting their orders.

Though boosted by record orders worldwide — its backlog stood at €91.9bn at the end of March — Alstom was also hit in 2023 by issues with contracts inherited from Bombardier, the Canadian company that it acquired in 2021, and problems in managing its inventory. 

Henri Poupart-Lafarge: Alstom is showing the ‘first proof of progress’ © AFP via Getty Images

It spooked markets last October by warning that free cash flow for the year to March 2024 would be negative to the tune of €500mn-€750mn, a drastic revision. Its share price has yet to fully recover after slumping to near 18-year lows, though the stock is up more than 28 per cent so far this year.

On Wednesday, Alstom said free cash flow came in at the better end of its forecast, at a negative €557mn, and said it would turn positive to between €300mn and €600mn in its next financial year, with operating margins set to increase even as annual sales growth slowed from 6.7 per cent to about 5 per cent. 

The bulk of asset sales will come from the €630mn disposal of a North American signalling business.

Canadian pension fund CDPQ, and France’s state-backed investor Bpifrance, Alstom’s two biggest shareholders, would subscribe to the capital raise pro-rata, the company added. 

Alstom had net debt of just under €3bn at the end of March, but rating agency Moody’s, which had urged the group to reduce its ratio of gross debt to core profits to 3.7 from above 4.5, also takes into account pensions liabilities and other factors.

Poupart-Lafarge told the Financial Times that Alstom was not likely to look at reinstating dividends until the year after that ending March 2025.

“We’re still going to be cautious,” he said.

“We have a long-term turnaround trajectory but we fully recognise that what happened in October calls for a very short-term turnaround,” he added.

Alstom has faced problems at its UK train manufacturing hub in Derby, where it was on the brink of mass job cuts before a last-ditch order was provisionally agreed with the UK government last month.

Poupart-Lafarge said the expected order for 10 trains gave Derby “some breathing space”, but warned its long-term future would not be secure until it received larger, “new long-term orders”.

The UK government has confirmed that several British train operators plan to tender orders for new trains imminently.

Alstom has also held talks with UK Export Finance, a government body which supports exporters, over possible new orders for international railways, Poupart-Lafarge said.

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