I need to analyze whether Bouygues should use hybrid bonds in its capital structure, and to what extent.

## Analysis of Bouygues' Financial Position

### Current Capital Structure (2022-2023)

**Debt Position:**
- Long-term borrowings: €11,586M (2023) vs €5,805M (2022) — **doubled**
- Current borrowings: €1,361M
- Current overdrafts/short-term bank borrowings: €418M
- **Total gross debt increase is significant**

**Net Debt:**
- 2023: €7,440M
- 2022: €941M
- **Massive increase in net debt** (nearly 8x)

**Equity:**
- Total equity: €13,932M (2023)
- Equity attributable to owners: €12,212M

**Key Ratios:**
- Debt-to-equity (2023): roughly (11,586 + 1,361 + 418) / 13,932 ≈ 95% or using net debt: 7,440/13,932 ≈ 53%
- The company has significantly increased leverage

### Cash Flow Analysis

**Operating Cash Flow:** €2,978M (2023), down from €3,576M (2022)

**Investing Activities:** -€8,631M (2023), massively negative due to:
- Acquisitions of subsidiaries: €6,269M (major M&A activity)
- Capex: €2,625M

**Financing Activities:** +€4,853M (2023), including:
- Proceeds from borrowings net: €5,745M
- Dividends paid: €777M
- Lease payments: €441M

The 2023 data shows **major acquisition activity** (€6.3B for subsidiaries) funded largely by debt.

### Interest Rate Environment Analysis

Looking at the swap curves:
- **2020-2021**: Negative to near-zero rates (extremely low)
- **2022**: Sharp rise to ~1.7-1.9% average (5Y-10Y)

Corporate bond spreads (iBoxx non-financial IG):
- 2020: 1.77%
- 2021: 1.30%
- 2022: 2.30%

The **rising rate environment in 2022** increases cost of debt.

### Hybrid Bonds Considerations

**Advantages of Hybrid Bonds for Bouygues:**
1. **Equity credit**: Hybrid bonds typically get 50-100% equity credit from rating agencies, improving leverage ratios
2. **Lower cost than equity**: Cheaper than issuing common stock
3. **Deductible interest**: Tax efficiency (though France has limitations)
4. **Flexibility**: Can defer coupons in stress scenarios
5. **Long duration**: Matches long-term infrastructure/assets

**Bouygues' Specific Suitability:**
- **Capital-intensive business**: Construction, telecom (Bouygues Telecom), media — long-duration assets
- **Investment grade profile**: Needs to maintain ratings
- **High leverage after M&A**: Net debt jumped from €941M to €7,440M
- **Need for balance sheet optimization**: After major acquisition, needs to deleverage appearance

**Why Not 0% or 100%?**
- 0%: Ignores useful tool for balance sheet optimization, especially post-acquisition
- 100%: Too risky; hybrids are still debt with coupon deferral risk, not true equity

**Why Not 75% or 100%?**
- Hybrids have "debt-like" features (coupon is expected, rating agencies limit equity credit)
- Too much hybrid debt creates refinancing risk and coupon pile-up
- Investors would demand high spreads if overused

**Why 25% or 50%?**
- 25%: Conservative, useful for rating agency equity credit without over-reliance
- 50%: More aggressive optimization, still maintaining balance

Given:
- Bouygues is **investment grade** (needs to preserve this)
- Major **M&A just completed** (needs balance sheet repair)
- **Rising rate environment** (makes fixed-rate long-term hybrids attractive vs floating bank debt)
- **Infrastructure-like assets** (long duration matches hybrid structure)
- French market has **good hybrid investor base**

However, Bouygues already has:
- Significant lease obligations (€2.1B non-current + €498M current)
- High goodwill from acquisitions (€12.6B)
- Need to maintain financial flexibility

**Optimal level: 25%** — This provides meaningful equity credit and diversification of funding without over-reliance on a complex instrument. It helps restructure the post-acquisition balance sheet while keeping things manageable. 50% would be too high given the already elevated leverage and the need to maintain a straightforward capital structure for an industrial group.

<answer>25%</answer>