PARIS: Shares in French auto group PSA Peugeot Citroen plunged early yesterday on rumours that the struggling company will raise new capital, and amid talk it might tie up with a Chinese firm.
The shares dived 9.42% to 11.20 euros in response to media reports of a capital increase, and in an overall market which was down 0.16%, as measured by the CAC 40 index.
The group, a top name in French industry, is in trouble and struggling to carry through a deep restructuring with job cuts and a plant closure.
Meanwhile, the socialist-led government has made raising the competitive position and rejuvenation of French industry a key policy plank, together with reducing high unemployment and promoting the “made in France” label.
The company has already linked with US car giant General Motors in an attempt to develop a new business strategy. A government-commissioned report found that PSA was in deep trouble because of decades of strategic mistakes, mainly because it had not made the most of globalisation.
PSA Peugeot Citroen has already, in effect, been rescued by means of French state support for its credit arm. The latest rumours suggest a new total cash injection of 3.0 billion euros (US$4bil).
PSA has not said that it would raise capital, repeating merely that it was in negotiations with “different partners,” but also said that none of the projects had “got to a mature stage at this point.”
Media reports suggest that Chinese company Dongfeng and the French state could each subscribe to 1.5 billion euros’ worth of shares in PSA.
Such an increase in the number of shares on issue would dilute the holdings of existing shareholders, and this has caused the price of PSA shares to fall.
One stock analyst in Paris, who declined to be named, commented: “Given the risk of such a big dilution without the creation of any extra value, we continue to think that we shall stand aside from the shares.”
He said that “with the presence of French state capital, the rise of Dongfeng seems to us more likely, because it (Dongfeng) alone would not have control of a standard bearer for French industry which employs more than 100,000 people in France.”
At brokers Aurel BGC, analyst Tangi Le Liboux said that “the Peugeot family, which currently controls 25.4% of the capital, would accept to lose this control.”
The family controls 38.1% of the voting rights.
He noted that the rumoured capital restructuring would enable French interests, in the form of the Peugeot family and the French state, to retain control of the company.
Such an arrangement would make less likely the chances of a tie-up with Opel, the European arm of GM, which would “lead to job cuts and factory closures,” he said.
However, he also commented that a structure involving (GM, the Peugeot family, Dongfeng and the state as shareholders, would appear to be complicated.”
The Wall Street Journal, citing someone close to the matter, reported that the PSA board would meet on Oct 22 to consider a possible injection of funds by Dongfeng.
A spokesman for PSA confirmed the date, but said that the meeting had been scheduled a long time ago. – AFP