PSA Peugeot Citroen (UG), Europe’s second-largest carmaker, reached an 11.5 billion-euro ($15.2 billion) refinancing agreement to rescue its bank unit as the region’s auto sales drop to the lowest in almost two decades.
The agreement was concluded this week with a pool of about 20 banks, and all that remains is the legal documentation, which should be completed by early January, Chief Financial Officer Jean-Baptiste de Chatillon said in a telephone interview today.
The French company is taking steps to sustain the Banque PSA Finance division as Moody’s Investors Service considers whether to cut the unit’s credit rating to junk because of the manufacturing business’s troubles. A non-investment rating would push up borrowing costs for buyers of Paris-based Peugeot’s vehicles. The carmaker’s stock, which touched a 27-year low in November, rose following the CFO’s comments.
“It’s a relief,” said Juergen Pieper, an analyst at Bankhaus Metzler in Frankfurt. “The share price is so depressed because people just have doubts about the survival of this company. Otherwise, you couldn’t justify such a low market value.”
The loans are part of a broader effort to shore up the automaker’s finances that also includes 7 billion euros in bond guarantees from the French state, asset sales and a strategic partnership with Detroit-based General Motors Co. (GM:US) The two automakers announced definitive agreements today to build three compact vehicles together and jointly purchase parts in Europe.
Peugeot gained as much as 5.1 percent to 5.88 euros and was trading up 0.7 percent at 4:58 p.m. in Paris trading. The stock has plunged 47 percent this year, valuing the company at 2 billion euros.
The French automaker said in July that it was burning through cash at a rate of 200 million euros a month as the European auto market heads for a 17-year low. Chatillon reiterated today that the automaker plans to cut its monthly cash burn in half by next year.
Peugeot deliveries in the region fell 13 percent through November, and its market share narrowed to 11.7 percent from 12.5 percent a year earlier. The European carmaking lobby, ACEA, said earlier this month that 11-month registrations in European Union countries alone were at the lowest since 1993.
As part of the 11.5 billion-euro cash facility, Peugeot’s bank unit is seeking a 4 billion-euro syndicated loan to refinance debt, two people with direct knowledge of the proposal said earlier this month. Chatillon declined today to comment on the details of the deal.
French Economy Minister Pierre Moscovici received clearance from parliament late yesterday to provide the financial guarantee on the banking unit’s new bonds. The guarantee, which Peugeot sought two months ago, may start as soon as Jan. 1, and is approved through the end of 2016, according to a 2012 budget revision passed by the National Assembly yesterday.
The French aid is “market priced,” Chatillon said. “It will represent several hundreds million euros over the period of the guarantee.”
The government assistance is likely to be reviewed by the European Commission, the regulatory arm of the EU. David McAllister, the prime minister of Volkswagen AG (VOW)’s German home state of Lower Saxony, said in an October interview that he may seek to challenge the support.
“We had seen this as being relevant only to the financing side of vehicle purchasing,” European Competition Commissioner Joaquin Almunia told reporters today. “That was the initial idea, but now we’re coming around to seeing that it’s restructuring aid for an entity. Therefore we need to get a proper notification in order to know how to deal with that.”
Chatillon, who said Peugeot is already holding discussions with the EU, reiterated that he sees no particular difficulties in getting the assistance approved.
“The commission will first provide a temporary authorization, which we’ll get early next year, and then a definitive authorization, once all the items will be documented on the legal side,” he said.
The French state and Peugeot’s labor unions each won a seat on Peugeot’s board in exchange of the government’s aid. Louis Gallois, a former head of planemaker Airbus owner European Aeronautic, Defence & Space Co. (EAD), will represent the government.
Peugeot has also issued 1.5 billion euros in asset-backed securities since last summer to shore up finances, Chatillon said.
Peugeot and GM, which owns the Opel and Vauxhall nameplates in Europe, said today that the models they plan to produce in common will be “highly differentiated” to maintain their brands’ identities. Additional projects are being considered in Latin America and other growth markets, they said.
The plans are a scaled-back version of projects the manufacturers outlined in October, when they said cooperation would include work on a fourth platform for a mid-sized car. Peugeot Chief Executive Officer Philippe Varin reiterated today that the alliance, announced in February, will bring about a total $2 billion for the partners in annual cost savings and sales improvement over five years.
Peugeot said on Oct. 24 that net debt at the end of 2012 will widen to 3 billion euros, from a July target of 2.5 billion euros. The carmaker’s first-half net loss amounted to 819 million euros.
The French manufacturer said Dec. 12 that it will eliminate an additional 1,500 jobs by 2014, on top of 8,000 announced in July. Peugeot is also closing a car factory on the outskirts of Paris and selling non-manufacturing assets.
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