After report of talks with Dongfeng and French government emerges, PSA’s shares slump image

Yesterday shares in PSA Peugeot Citroen dropped as much as 10% after a news report emerged – saying the automaker is readying a 3-billion-euro ($4.1 billion) capital increase in which Chinese partner Dongfeng and the French state would both acquire big stakes.

According to Reuters, sources briefed on the proceedings revealed the existence of a draft agreement, which Peugeot hopes to sign by year’s end, in which state-controlled Dongfeng Motor Co Ltd and the French government would each cash out 1.5 billion euros to take matching stakes of between 20-30%.

PSA stock was 10.19% lower at 11.105 euros by 1304 GMT as analysts said the reported capital increase would automatically diminish the value of existing shares in the French automaker.

“Depending on terms we would likely regard such a large capital raise as a negative for existing shareholders given the likely dilution,” analysts at Citi Research said in a note.

“There is no great secret, Peugeot is on the look-out for partners,” Finance Minister Pierre Moscovici told a French radio. “PSA’s financial situation is not difficult … the main thing is making sure there is an industrial logic to this.”

French trade unions said they were open to the prospect of the state taking a stake in PSA,  but their main concern was the survival of local jobs and who ultimately would secure control of the group.

Via Reuters