Peugeot
is using up cash as the region’s car market heads for its biggest
annual drop in 19 years. Photographer: Alexander Zemlianichenko
Jr./Bloomberg
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PSA Peugeot Citroen (UG) won 7 billion
euros ($9 billion) in French government guarantees to shore up
its ailing finance arm after predicting the carmaker’s debt is
set to rise 20 percent more than previously expected.
The state backing will allow Banque PSA Finance to sell new
bonds and in exchange the government and workers will each get a
seat on the board of directors, Chief Financial Officer Jean- Baptiste de Chatillon said today. Peugeot is also working with lenders to increase the finance arm’s credit line by 1 billion euros and renegotiate some of the terms of an existing 10.5 billion euros in credit to secure the funding until 2015, the CFO said.
Peugeot, Europe’s second-largest carmaker after Volkswagen AG (VOW), needs the French guarantees to keep down borrowing costs, which impact the financing rates paid by customers. Peugeot said net debt at the end of 2012 will rise to about 3 billion euros, up from its July target of 2.5 billion euros, as the European auto market heads for its biggest drop in 19 years.
“I cannot just underwrite your debt and just say I’m happy for you to just continue,” said Erich Hauser, a Credit Suisse analyst with a neutral rating on the shares. “The state will want to see this business run more in the interest of government, rather than in the interest of the shareholders.”
The French Finance Ministry said today that a guarantee committee will be set up with representatives from the government and company to oversee any change in control of the automaker as well as “significant” changes in its operations.
Peugeot will not pay any dividends, repurchase shares or provide management board members with stock options or performance shares as long as the government guarantee is in place, the automaker said in a separate statement.
Shares Drop
Peugeot dropped as much as 17 cents, or 2.9 percent, to 5.66 euros and was down 2.8 percent as of 9:26 a.m. in Paris trading. The stock has plunged 46 percent this year, valuing the carmaker at 2.02 billion euros.The carmaker, whose nine-month sales in the region dropped 13 percent, said in July it will eliminate 8,000 jobs and close a factory near Paris. Peugeot has also sold assets and issued 1 billion euros in new shares to raise funds.
“The competitive environment is getting tougher, with increased pricing pressure and ongoing deterioration in the markets of southern Europe,” Peugeot said in today’s statement.
Alliance Progress
The French automaker earlier this year entered into a strategic alliance with General Motors Co. (GM) in which GM became the second-biggest stakeholder.Peugeot said today it's making progress with GM on the alliance and the two have selected four vehicle projects to work on together. The carmakers have also agreed on the next steps in their purchasing cooperation. The two aim to sign detailed contracts for the alliance by the end of the year.
The vehicle projects include a small van for GM’s Opel and Vauxhall brands and a compact crossover for the Peugeot nameplate. A small multi-purpose vehicle will be shared between GM’s European brands and the Citroen marque, Peugeot said today.
The two carmakers will also cooperate on a fuel-efficient small-car platform for future GM and Peugeot vehicles in Europe and other markets as well as a program for mid-sized cars. The first vehicles from the cooperation are due to be introduced by the end of 2016. GM and Peugeot expect the cooperation to generate savings of 2 billion euros annually within five years.
Sales Drop
Peugeot third-quarter revenue fell 3.9 percent to 12.9 billion euros from 13.5 billion euros a year earlier, the carmaker said. The figure beat the 12.7 billion-euro average of nine analyst estimates compiled by Bloomberg. Peugeot expects the European auto market to contract 9 percent in 2012, it said.The continued review of Peugeot’s financing arm for a possible downgrade by Moody’s Investors Service could lead the bank to be rated junk. A non-investment grade rating for the bank would increase borrowing costs and as a result worsen financing conditions for customers and dealers.
The bank’s creditworthiness is “inherently linked” to that of Peugeot’s “given the intricate strategic, commercial and financial ties” between the two, Moody’s said July 27, after cutting the banking unit to its lowest investment grade. Moody’s cut Peugeot on Oct. 10 to Ba3, which is three levels below investment grade. The service said this month that the bank’s rating is under review.
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