France yet to notify EU on Peugeot state aid package
European regulators have not received a formal notification from France regarding state guarantees for PSA Peugeot Citroën’s €7bn refinancing plan.
The European Commission has not received formal notification from France about planned state guarantees for PSA Peugeot Citroën’s €7 billion refinancing, European Competition Commissioner Joaquin Almunia confirmed on Wednesday, 24 October 2012. The Commission must approve any state aid measures before they can be implemented in the European Union.
PSA Peugeot Citroën, the second-largest carmaker in Europe, announced it was close to finalising an agreement with creditor banks for €11.5 billion in refinancing and had secured state guarantees covering €7 billion in new borrowing for its finance subsidiary, Banque PSA Finance. The French government’s support is intended to stabilise the group’s automotive lending operations, which have come under strain as the European car market contracts.
As a condition of the guarantees, Peugeot agreed to several measures demanded by the French state. These include appointing government and union representatives to the board, suspending dividend payments, and cancelling executive stock option awards. The company’s chief executive, Philippe Varin, acknowledged that objections from European regulators could not be ruled out. Finance chief Jean-Baptiste de Chatillon argued that the guarantees are priced at market rates and described the arrangement as state support rather than state aid, insisting the plan does not breach EU rules.
European Commission review required
Any state support for a company operating in the European Union must be notified to the European Commission for assessment under competition law. Commissioner Almunia stated that the Commission would conduct a thorough review once France submits a formal notification. Until then, no regulatory decision can be made.
The refinancing plan and state guarantees come at a time of deep restructuring at PSA Peugeot Citroën, which has faced mounting losses and falling sales in its core European markets. The company’s reliance on state backing has drawn scrutiny from both EU regulators and rival manufacturers concerned about market distortion. For more on the company’s restructuring and job cuts, see Peugeot Surpasses Target with 5,700 Job Cuts in France.
What’s at stake for Peugeot and France
If the European Commission finds that the French guarantees constitute unlawful state aid, PSA Peugeot Citroën could be forced to repay the support or modify the terms. The French government, meanwhile, risks delays to its industrial policy objectives and further controversy over its intervention in the automotive sector. The outcome will determine how quickly Peugeot can access the funds needed to support its finance arm and whether similar support packages could be considered for other struggling manufacturers.
Until France submits the required documentation, the timetable for regulatory review and implementation of the guarantees remains uncertain.
