- POSTED: 21 Jan 2014 02:01
Shares in troubled French auto group PSA Peugeot Citroen plunged on Monday after the company's management approved plans for Chinese group Dongfeng and the French state to take major stakes.
PARIS: Shares in troubled French auto group PSA Peugeot Citroen plunged on Monday after the company's management approved plans for Chinese group Dongfeng and the French state to take major stakes.
The shares in the automaker slumped 11.11 per cent to 10.21 euros on news of the plan that would reduce the value current shareholdings.
The supervisory board of PSA Peugeot Citroen agreed on the restructuring late on Sunday following the exit of US giant GM, sources close to the matter told AFP.
Newspaper reports have put the capital increase at about 3.0 billion euros (US$4.0 billion), a big amount relative to the group's value on Friday of about 4.1 billion euros.
New shares enabling Dongfeng and the government each to acquire about 14.0 per cent of the group would be made at a discount of up to 35.0-per cent from Friday's share price of 11.48 euros.
Peugeot family retains stake
Under the reported terms, the Peugeot family, the current controlling shareholder with 25.4 per cent of capital, would retain an interest of 14.0 per cent.
The exact amount of stock held by each party would depend on the amount of shares offered to the public and on the price, a source close to the matter said.
The reports said that the new shares would be issued at 7.5-8.0 euros each, meaning an injection of about 750 million euros for Chinese group Dongfeng and the cash strapped French state.
"The share is falling because people are afraid of the size of the dilution implied by the operation," said a Paris trader.
Without the details of plan "serious investors can't take positions."
The French group, the second-biggest automaker in Europe after Volkswagen, also announced a 4.9-per cent fall in sales to 2.82 million vehicles last year, its third year in a row of dropping sales.
But sales began to recover in the fourth quarter, climbing by 4 per cent.
And sales outside Europe rose from 38.0 per cent of the total in 2012 to 42.0 per cent in line with the "objective of achieving 50 per cent of sales outside Europe in 2015".
Sales jumped by 26 per cent in China, which is now the group's number two market behind France. It could become the top market for the Peugeot brand this year, an executive said Monday.
The latest figures reflect the recent crisis in the European car market, now showing signs of easing.
Last year, a government-ordered enquiry found that the group had made strategic mistakes for years by not seizing fully the opportunities of globalisation.
Peugeot has already in effect been rescued by 7.0 billion euros in state-guaranteed refinancing for its credit arm.
It suffered a record 5 billion euro loss in 2012 and has been burning through its cash. The group has cut thousands of jobs and closed a factory in France.
At the height of the global financial crisis, General Motors, itself in the throes of radical restructuring from bankruptcy, tied up with Peugeot by taking a stake of 7.0-per cent.
But GM is the biggest foreign auto group in China, and with a tie-up between Peugeot and Dongfeng looking almost certain, GM announced in December that it was pulling out of the French group.
French state "vigilant"
PSA Peugeot Citroen operates three factories in China in cooperation with Dongfeng and has a fourth in partnership with another company.
French Finance Minister Pierre Moscovici said Sunday that "the state is particularly vigilant ... so that Peugeot continues to be a big French manufacturer, and even finds ways to develop".
Sources close to the matter said that the company hoped to outline an agreement when it published its annual results next month and ahead of a visit to Paris this spring by Chinese President Xi Jinping.
Jean-Francois Dufour at DCA Chine-Analyse said Dongfeng's arrival could open access to financing from Chinese banks, as has happened for Volvo after it was bought by China's Geely in 2010.