* France seeks foreign cash to help boost sector
* Investors unlikely to take minority stakes
* Asset-related deals more likely
By Nina Sovich PARIS, Dec 18 (Reuters) - French President Nicolas Sarkozy's invitation to foreign companies to invest in France's nuclear sector may fall on deaf ears, as investors balk at taking small stakes in state-owned companies over which they have no control.
Industrial players may instead make specific investments in nuclear power plants through which they can secure electricity supply contracts and gain expertise in the operation of cutting-edge nuclear technology.
At a news conference earlier this week, Sarkozy opened the doors of France's closely held nuclear industry, saying foreign investors were needed to defray the high capital costs of building nuclear power plants.
France is trying to position itself as an export powerhouse in nuclear energy, capable of meeting roughly a third of global demand, which is on the rise due to dwindling oil supplies and concerns over carbon emitting coal- and gas-fired plants.
Both power group EDF and nuclear reactor maker Areva are looking for ways to raise the money necessary to develop more efficient nuclear reactors and cover the high initial costs of their development.
Areva, which is 91-percent state owned and 2.4-percent owned by EDF, will sell new shares this spring to help it raise 11 billion euros ($15.83 billion), while the recent sale of its transmission and distributions (T&D) unit raised four billion.
EDF aims to sell 5 billion euros in assets. If the government does not allow the 85-percent state-owned group to hike power tariffs -- likely in the current economic climate -- it may also be forced to tap capital markets to raise cash.
Industry insiders, however, say it may be more difficult than expected to attract foreign investors, as many players will balk at taking small equity stakes.
AT THE WHIM
"Who wants to be at the whim of the French government, with no power, no control? Certainly not the vast majority of players who are able to make a significant investment," said Alex Barnett, an analyst at Jefferies in Paris.
Several bankers and investors who have looked closely at Areva and EDF say a broad but ill-defined group of potential investors -- sovereign funds from the Gulf and East Asia, as well as Asian utilities -- are being targeted to invest.
They caution, however, that some have been put off by France's meddling in the sale of Areva's T&D business, which was sold to a French consortium of Alstom and Schneider in spite of higher offers from foreign bidders.
"It is safe to say that some investors are wary of getting tangled up with the French again," said an investor with specific knowledge of the T&D auction.
France has a long history of protecting its industries through self-professed "economic patriotism", a concept developed under President Jacques Chirac, and more recently through trumpeting the need for an "active industrial policy". It engineered the merger of Suez and GDF in 2007 to stall a bid by Italian utility Enel and in 2005 warned PepsiCo from bidding for food group Danone.
Regardless, Sarkozy is keen to draw in foreign investment without losing control over strategically important energy companies. On Monday he singled out Siemens as a company he wished France could have more "future projects" with.
The comment raised eyebrows in the energy industry because Areva and Siemens are in the process of cutting their ties, after the French government denied Germany-based Siemens a direct stake in Areva, the parent company.
"At this stage, we think it is rather unlikely that Siemens will respond positively to these signals, if at all. In our view, France and its vehicle Areva would have to offer deal sweeteners," Thomas Langer, an analyst at WestLB said in a note.
COURTING ABU DHABI
Instead of attracting big players like Siemens that bring industrial expertise and a long-term vision, France may be forced to court short-term investors looking for a safe place to stash their money, or potential clients who may demand a reduction in contract prices in exchange for buying stock.
In either case, investment in the nuclear sector would not be based on the soundness of French companies, but behind the scenes negotiations where politics matters more then economics.
The most obvious example is the government of the United Arab Emirates, whose utility company is looking to build up to 6 nuclear power plants, worth some $40 billion.
A French consortium led by EDF and GDF Suez, and including Areva and oil group Total, are bidding on the contract. If the Abu Dhabi government takes a stake in Areva it will be seen as a deal to secure a lower price on the nuclear power plants, some observers said.
"That would be the quid pro quo. They tell Abu Dhabi: we'll give you the plants at a good price, you take a stake in Areva or EDF," said a French banker involved in the energy sector but not directly working on the deal.
LINING UP FOR THE EPR
While direct stakes in Areva are difficult to sell, European utilities are clamouring to take a stake in the new generation EPR nuclear stations being built in France. The very first reactors of this type -- with a capacity of 1,650 megawatts, nearly 10 percent more than the most recent models -- are being built in Finland, France and China.
The reactors cost between 5 billion and 6 billion euros to build and are at the forefront of the French government's hopes to turn nuclear technology expertise into cash profits.
German utility E.ON and Italy's Enel reaffirmed this week their interest in taking a stake in the new plant being built at Penly in northwestern France, while Enel already has a 12.5 percent stake in France's first EPR, being built in Flamanville in northern France.
"Everyone (European utilities) wants part of (the) EPR projects so they can secure some (electricity) output for their home markets and get back on the nuclear learning curve," said Arie Flack, the managing director of La Compagnie Financiere du Lion, a Paris-based investment bank.
These utilities would then be in pole position to build plants in their home markets, if and when their governments allow new nuclear builds, he added. For a Factbox on the EPR please click on For the latest stories on the French nuclear industry, click on ($1=.6949 Euro) (Reporting by Nina Sovich, Marie Maitre, Marilyn Gerlach Benjamin Mallet, editing by Marcel Michelson and Simon Jessop)