Chinese partner buys into Peugeot’s rescue

Paris - PSA Peugeot Citroën planned to build new cars and expand in Asia under a French-backed rescue deal, the car maker said yesterday, as it posted a e2.32 billion (R34.6bn) loss that underscores the scale of the task ahead.

The Paris-based group announced long-awaited fund-raising of e3bn that would bring it new leadership, more time to turn itself around and an end to two centuries of family control.

Dongfeng Motor Group and the French state would each pay e800 million for stakes of 14 percent apiece of the car maker to match the founding Peugeot family’s reduced holding, the firm said, confirming earlier reports.

Peugeot shares jumped as much as 9 percent after it unveiled new goals for the partnership with China’s Dongfeng and said it had slashed cash burn last year, beating an interim recovery goal.

“The improving situation in Europe is starting to affect the company,” ISI Group analyst Erich Hauser said, adding that he was “surprised by how much better the performance was in the second half” of last year.

While the loss was reduced from e5bn in 2012, Peugeot warned it might not stem the red ink until 2016, a year later than initially promised.

Chief financial officer Jean-Baptiste de Chatillon said Peugeot would use its new capital to catch up in hybrid technology, low-cost cars and Mediterranean markets, where it has been left behind by French rival Renault.

“Everything is in place to give Peugeot a new lease of life as a major international car maker,” Chatillon said.

Incoming chief executive Carlos Tavares said there was still “huge room for improvement” on costs. “Our challenge is to be the best of the Europeans in terms of [our] manufacturing and distribution model, which frankly is not the case today,” he said.

Under their framework deal, Peugeot and Dongfeng pledged to expand their existing joint venture, adding new models to target sales of 1.5 million vehicles a year in 2020, and to generate e400m of savings for the French partner.

Dongfeng-Peugeot would create a major new research and development centre in China and a sales venture to export cars to south-east Asian markets, the companies said.

Peugeot would sell shares to Dongfeng and the French state at e7.50 a share – a 40 percent discount to the prevailing market price. Both would subscribe to a rights issue backed by banks to raise another e1.95bn.

Current shareholders would receive warrants allowing them to buy three new Peugeot shares at the same discounted price for every 10 held – raising up to e770m more.

The deal marks the end of an era, with chairman Thierry Peugeot and chief executive Philippe Varin stepping down. Former Renault second in command Tavares, whose appointment was unveiled in December last year, took over the operational leadership yesterday.

Dongfeng, France and the Peugeot family would each have two board seats, according to a summary of their shareholder agreement published by the Chinese car maker.

The Peugeot board was “expected to be chaired by an independent member”, it said.

But in a sign of potential governance headaches arising from the new “three-headed” ownership, France made it clear there was no consensus on the nomination as it pushes senior civil servant Louis Gallois as its own candidate.

“There will be a discussion between the shareholders,” Industry Minister Arnaud Montebourg said, adding it was “too early to say” whether the chairman would be independent. – Reuters