LONDON- France, one of Europe's biggest issuers of inflation-linked bonds, may see its sovereign debt servicing costs rise by 4-5 billion euros this year as a result of faster-than-expected inflation, a study by the Scope credit rating agency shows.

The report, to be published on Wednesday, shows that surging inflation makes such bonds more expensive for the issuer, and that France may be among the euro zone states most vulnerable to such a rise in its debt costs.

France was the first euro zone state to issue inflation-linked bonds in 1998, and now has about 246 billion euros of such debt outstanding -- roughly 11.3% of its total debt. In the euro area, that is matched only by Italy.

According to Refinitiv data, French sovereign debt totals about 2.5 trillion euros.

Because investors are willing to pay a premium to hedge against inflation risks, selling inflation-linked bonds can be cheaper for the borrower than conventional debt.

But Scope's report, seen by Reuters, said empirical evidence suggests the cost benefits are mixed, as issuers may have to pay investors a premium to compensate for lower liquidity.

And such instruments present an additional cost if inflation rises by more than expected, as it has done recently.

Scope estimated that French interest costs could rise by around 4-5 billion euros in 2022 compared with 2021, although it did not give a cost estimate for last year.

France's debt agency estimates 2022 debt servicing costs at just over 38 billion euros. That cost was roughly 36 billion euros in 2020 or 1.6% of French economic output.

Scope added that the implicit or average interest rate on France's sovereign debt rose last year for the first time since 2012 to 1.37% from 1.14% at the end of 2020.

France has six bonds linked to the French consumer price index, or just over 3% of its total debt stock, and 12 bonds indexed to the euro zone CPI, representing around 8% of debt.

Scope said French bonds linked to euro zone inflation were likely to present higher fiscal costs, as inflation in the currency bloc has been higher than in France.

Inflation excluding tobacco averaged 2% in France last year, versus 2.6% in the euro area.

Scope said the gap between the two has widened in recent months, by up to 1.6 percentage points in February.

"If this gap is sustained or even grows, there is a risk that the increase in OAT€i bond payments would outpace that of fiscal revenue and further increase the total cost of public debt," the report added, referring to French bonds linked to euro zone inflation.

France, which holds the second round of a presidential election this weekend, saw public debt shoot up to about 115% of economic output during the COVID-19 pandemic from under 100% previously.

(Reporting by Dhara Ranasinghe; Additional reporting by Thomas Leigh in Paris; Editing by Sujata Rao and Catherine Evans)