PARIS — Moving to allay investors' concerns about its financial disclosure, engineering company Alstom SA named a respected French executive to advise its chairman on financial matters and said it would replace its chief financial officer by the summer.
The company that makes the famous high-speed TGV trains, as well as ships and power plants, angered investors last autumn by playing down its exposure to a bankrupt U.S. cruise line, Renaissance Cruises. After initially saying its exposure to Renaissance was minimal, Alstom revealed in early October that it was in fact on the hook for as much as 684 million euros because it had guaranteed bank loans Renaissance had used to buy eight cruise ships from Alstom's shipyards. The practice is known as vendor financing. Since the disclosure, Alstom shares have shed more than 60% of their value. News of the appointment of Philippe Jaffre, former chief executive of oil company Elf-Aquitaine SA, as a financial adviser to Alstom Chairman Pierre Bilger, was greeted warmly by investors. On the Paris stock market Thursday, Alstom shares rose 78 European cents each, or 6.3%, to 13.25 euros. Alstom also said it would replace its chief financial officer, Francois Newey, by July. In an unusual arrangement, Mr. Newey and his successor will report to Mr. Jaffre. "Change at the top is welcome, given communication issues and how the company has handled certain things," said Rosemary Sagar, a portfolio manager at U.S. Trust, an institutional holder of Alstom shares. Mr. Jaffre is credited for cleaning up Elf in the 1990s after decades of rampant corruption and mismanagement at the former state-owned company. He left Elf in late 1999 when it fell prey to a hostile takeover by domestic rival TotalFina. Elf is now part of oil giant TotalFinaElf SA. Mr. Jaffre "has a deep understanding of industry, exceptional experience in banking and good relations with investors and analysts," said Mr. Bilger. The two men have known each other for some time. Mr. Bilger was a member of Elf's board when Mr. Jaffre was Elf's CEO. The flap over Renaissance Cruises is just one in a series of financial and operational miscues that have plagued Alstom, formerly a joint venture between France's Alcatel SA and Britain's Marconi PLC, since it went public in 1998. Alstom's problems started with its power activities, which contribute more than half of its revenue. Last year, news leaked that one of the company's gas-turbine lines had faults, eventually causing it to set aside 1.6 billion euros in provisions to compensate customers. The Renaissance disclosures followed last autumn. Then came more bad news in November, when Alstom confirmed that trains it had sold some British customers had quality defects. At the same time, Alstom's high debt level became a major concern among investors. At the end of September, the company had a net debt of 2.05 billion euros, compared with a market capitalization of around 3 billion euros. Some analysts believe Alstom's debt is in fact much higher because of the vendor financing it has offered other cruise-line customers like Renaissance. Mr. Bilger recently promised asset sales to pay down the debt. Analysts expect the company to make good on that promise as early as next month.