Peugeot gets temporary EU approval for French state aid image

Peugeot’s financing arm, Banque PSA Finance, was granted temporary EU approval for 1.2 billion euros of bonds backed by the French state.

However, the carmaker now must justify the state-aid package aimed at saving it from collapse. The European Commission said Banque PSA Finance will be able to sell three-year bonds backed by the French government for the next six months. In order to get final approval, France must submit a restructuring plan within six months showing how Peugeot and its bank unit intend to become profitable without state help.

While France agreed to support Peugeot’s financing arm with 7 billion euros in guarantees, it has only asked the EU to authorize the 1.2-billion euro guarantee so far. PSA Peugeot Citroen needs the French aid to keep down borrowing costs, which affect the financing rates paid by customers.

The EU explained that the guarantee was necessary to grant Banque PSA Finance’s access to financial markets and to avoid any contagion to the French banking system that could affect bank financing.

However, a final decision would cover “all the aid” to the company, Antoine Colombani, spokesman for EU Competition Commissioner Joaquin Almunia, was quoted as saying by Bloomberg. Large state subsidies require EU approval and regulators can impose conditions to counter the advantage given by the aid.