France Telecom shares closed down 1.9 percent to 20.61 euros in the French Market Monday after the country's economy minister, Christine Lagarde, said the government will sell a 5 percent to 7 percent stake in the company and use the money to reduce state debt.

The sale will reduce the government's stake to between 25.5 percent and 27.4 percent, which keeps the state well above the threshold it needs to be able to veto a takeover. In her statement, Lagarde insisted that the government "intends to remain a significant shareholder in France Telecom over the medium term."

According to Wing-Yen Choi, an analyst at Theodoor Gilissen, the time to watch out for private-equity interest is if and when the government reduces its stake in the company below 10 percent.

Initially, 130 million shares, or 5 percent of the government's 842.4 million shares, will be sold to institutional investors, and if there is demand, the total could rise to 180 million shares. Based on France Telecom's current price, the sale will range from 2.7 billion euros (3.6 billion dollars) to 3.7 billion euros (5 billion dollars), depending on how many shares are sold.

While for the company, the sale reflects just a small change in the ownership balance, it is good news for the government. Since coming to power in May, President Nicolas Sarkozy has promised to cut taxes by 11 billion euros (14.08 billion dollars) in the next year and reduce the country's debt to 60 percent of its 1.871 trillion dollar gross domestic product, from 65 percent.

Lagarde has said that she will introduce legislation outlining a series of tax cuts in early July.