Alstom cash flow warning wipes $3 billion off train maker's value

(Reuters) -Alstom's shares plunged by as much as 38% in Paris on Thursday after the French train maker slashed its full-year free cash flow target, raising concerns over its debt levels.

The shares were heading for their worst one-day drop in over 20 years as of 0933 GMT, with the losses wiping some 2.9 billion euros ($3.1 billion) from Alstom's market value.

Alstom's biggest outstanding bond - a fixed coupon due in 2029 - also slumped, sending its yield up more than 40 basis points to a record of 4.917% on Tradeweb.

On Wednesday evening, Alstom cut its full-year free cash flow guidance, pointing to order delays and a production ramp-up that weighed on its cash in the first half of the year.

Alstom, which makes France's iconic TGV high-speed trains, expects a cash outflow of 500-750 million euros over the full year, after a preliminary first-half outflow of 1.15 billion euros, well above the consensus for a 152 million euro outflow cited by Jefferies.

"We see this as a major blow to management's credibility," Deutsche Bank analysts said in a note, adding they now expect Alstom to end the full-year with net debt of 3 billion euros, about 1 billion higher than previously expected.

Traders voiced concerns that the French company could lose its investment grade rating and noted that investor confidence in its management could be brought into question.

Citi analysts were less concerned about liquidity, but nonetheless added that "the past track record on cash means cash improvement is now very much a 'show me' story,".

Alstom has been building inventories to cover a backlog of orders that had accumulated over the last couple of years, but on Wednesday warned of "weaker than expected" half-year orders.

Inventories had increased significantly, while its Aventra programme in Britain had been delayed, Alstom said.

"We are engaged in a steep ramp-up, in particular in the rolling stock activity. This, combined with legacy projects being finalised at the same time, is weighing on the free cash flow in this first half," Alstom said on Wednesday.

JP Morgan analysts, who see the drop in the shares as a potential buying opportunity, said in a note the issues were "transitory in nature," and pointed to Alstom confirming its full-year margin outlook and mid-term targets as positives.

($1 = 0.9516 euros)

(Reporting by Olivier Sorgho; additional reporting by Danilo Masoni; Editing by Susan Fenton, Amanda Cooper and Alexander Smith)