Dexia Municipal Agency will be the subsidiary of a new credit institution that will be 31.7% owned by the French state, Dexia Group announced on Friday, confirming recent speculation.

The new credit institution is being formed alongside a new joint venture between La Banque Postale and Caisse des Dépôts whose business will be lending to local authorities.

The credit institution will own and run the Dexia société de credit foncier, which will refinance eligible loans granted by the joint venture. Stakes in the credit institution will also be held by Caisse des Dépôts (31.7%), Dexia Crédit Local (31.7%), and La Banque Postale (4.9%).

Dexia will extend some legal and financial guarantees to Dexia MA, and will benefit from a partial counter-guarantee from the French State on sensitive loans as laid out in October.

Dexia Group is selling Dexia MA for Eu380m, a loss of about Eu1bn for the Dexia Group, enabling the Dexia Group to further reduce its balance sheet and liquidity requirement, while keeping its industrial tool intact. A price adjustment provision after three years, upwards and downwards and accompanied by a limit, has been provided for.

The transaction will reduce the group’s liquidity requirement by Eu12bn.

It was approved on Friday by the board of directors of Dexia SA and will be submitted for the approval of the European Commission and the competent supervisory authorities, said Dexia. It will also be submitted to the staff representatives for their opinion.