Scramble for French toll roads

SHARES in France's first privatised toll-road company started trading in Paris after institutional investors flocked to Europe's biggest flotation this year.

The shares in Autoroutes du Sud de la France (ASF) offered in the institutional placing were priced on Wednesday night at e25, only 50c below the top of the indicative price range of e22 to e25.5, after the institutional offer, which was eagerly snapped up in the City, was 19 times subscribed.

The issue valued the company at e4.65bn (£2.8bn) Private investors in France were encouraged to invest in the biggest popular privatisation since that of France Telecom five years ago with a e1 discount.

The sale of 49% of the capital, enlarged by e800m of new equity to help reduce debts, will deliver a e1.8bn windfall to the French government.

Last year it generated net profits of e218m, on revenues of e1.92bn, up 2.3%. But with only 318km of its network still to build, the company is fast turning into a cash cow.

Tolls provide 98% of its revenue, and last year generated e754m of operating profit, even after the company was obliged to take a e114m hit when it was required to levy value added tax on tolls, without passing it on to road users.

Laurent Fabius, the French Finance Minister, hailed the success of the sale, both in terms of attracting investors and topping up the State's depleted reserves. Although interest charges on post-privatisation gearing of 270% eats cash, the number of vehicles per kilometre rising by 5.3% a year.

Further, ASF has ample scope for further cost-cutting by automating toll collection, in which it lags behind Italian and Spanish peers - a move that will only be encouraged by last week's strikes by toll collectors that enabled motorists to go free.

So most institutions believe that on a 10-year view, the business will generate excellent returns, provided that chairman Bernard Val is not tempted into unprofitable foreign expansion.