A Letter From Paris

Posted On: 18th March 2020
A Letter From Paris

As many of you are aware France is now in lockdown together with Italy, Spain and some other European countries, following a sharp spike in the number of Covid‐19 cases in the country in the last few days.

There has been a surprisingly wide range of reactions from the various governments who have been most affected by this epidemic so far (China, South Korea, Italy and France for example). In France the messages sent out by the government were initially somewhat mixed, but the measures announced by the President on March 16th were much firmer. The sequence of events over the last few days was as follows:

From March 14th at midnight: The government closed all shops (other than food stores and pharmacies), restaurants, bars, cinemas and theatres and banned all gatherings of more than 100 people.

March 15th: The first round of the municipal elections was allowed to go ahead against scientific advice and despite the government measures introduced the day before, and in contradiction with government advice on social distancing.

From March 17th at 12h00: All French citizens were placed in effective confinement in their area of residence. A pass is required for any travel, with the permitted reasons for travel limited to:

a) going to work if required to do so,

b) going to the shops to buy food, or

c) going to the doctor or pharmacy.

A pass also needs to be produced to justify the reasons for travel. This will be policed and the fine for not respecting these new measures is 135€.

These confinement measures have been introduced for a 15 day period but the government reserves the right to roll them over and renew them for as long as necessary. On the basis of the latest modelling for the epidemic and the experience in China, it is considered that these measures will be needed for a minimum of 30 days and more likely 45 days. 60 days is by no means considered an improbable scenario.

In order to ensure that social distancing is maximized, all citizens are being encouraged to work remotely where it is possible. In those sectors of the economy where working remotely is impossible, in particular manufacturing industry, there have been varied reactions.

Several major industrial employers have stopped production entirely (e.g. Michelin, PSA and Renault) while others have already reduced production significantly. Several small and medium‐sized firms are trying to continue as best they can, but they are likely to run out of raw materials and parts at some point. French manufacturing industry is therefore likely to be coming to a complete halt over the next few weeks.

At the same time, the government has also announced some emergency measures of financial support for businesses affected by this epidemic. This aid will come mostly in the form of emergency loan guarantees and loans channeled through BPI France, the state‐owned investment bank. This package consists of underwriting loans from commercial banks as well as direct loans from BPI France. The government is also expected to be making some changes on the carry‐back of tax losses to help the businesses affected by this epidemic.

Many of you will have customers in France or customers with subsidiaries or partners in France.

The general advice that Zalis is giving its customers in these unique circumstances is as follows:

  • If your activities have been suspended, consider that your business has been frozen in time from March 15th and for the length of time that the restrictions remain in place.
  • Follow government advice by not paying out any amounts other than for wages and salaries and direct production costs until the restrictions are lifted (i.e. no payments to the state for social charges and VAT, no payments for rent, rates or utility charges, no loan repayments and interest payments, etc.).
  • Use the partial unemployment (“chômage partiel”) measures for as many employees as possible to lower the overall social costs, as the conditions of application for these measures have been substantially improved.
    Produce a crash test cash flow forecast to work out how much emergency funding your business will need to survive the crisis.
    Contact your bank to ensure your overdraft facilities are in place, and if necessary obtain a loan guarantee from BPI France.
    Where the crash test shows that further funding is needed, first contact your existing banking partners to extend your facilities and failing that contact BPI France directly.
  • The BPI call centre is overloaded, and it is best to make an application online making sure to leave a mobile phone number to enable them to get back to you.

It should be noted that the government is very keen to ensure that there should be no job losses caused by this crisis and the budget for the aid package put in place through BPI France is unprecedented. This is being treated as a war by the government. The courts will be largely closed during this period and the government has made it clear that they wish to avoid any bankruptcies linked to this crisis as far as possible.

In these circumstances this crisis could paradoxically give some distressed companies the breathing space to prepare plans for the future of their business, and to take measures to save their business that would not previously have been possible.

Posted By: BTG Global Advisory

Posted On: 18th March 2020

BTG Global Advisory is one of the world’s largest specialist independent financial advisory alliances.