Peugeot SA in negotiations for a capital injection amid falling sales

The French auto maker Peugeot SA announced that it is currently negotiating with investors a lifesaving capital increase. The company reported today that its sales fell by 4.9% in 2013 from a year earlier. Over the weekend, Peugeot SA posted information about a capital increase, which combined with the weak sales figures announced today, gave ground to consider that Peugeots share price will likely continue to fall.

Currently, the company is negotiating with Dongfeng Motor Co., Peugeots Chinese partner, as well as the French state about a capital increase estimated to about 4 billion dollars. It needs the capital injection in order to finance its industrial, research, development and also commercial projects, which will ensure its future existence in the conditions of an increasingly difficult market.

The board, whose meeting was on Sunday evening, gave a green light to the companys Executive Officers to settle the terms of the capital restructuring that will make Dongfeng and the French state core shareholders in Peugeot SA. There will also be a rights issue involved in the financing.

The Chinese partner of Peugeot – Dongfeng Motor Corp, and the French state would each contribute at least 750 million Euro. A person familiar with the matter, who asked not to be named because the meeting was not public, said that they will both acquire holdings of about 14% each. A rights issue estimated to about 1.4 billion Euro for the rest of the funding would be hold by the automaker.

Zhu Fushou, who is the General Manager of Dongfeng Motor Co. said in an interview today in Beijing, cited by Bloomberg: “If we invest in Peugeot, it’ll bring benefits such as technology and other resources that will help us develop our own cars. Peugeot’s main problem is its heavy reliance on Europe, which it should address by shifting focus to emerging markets.” Fushou however refused to give any more details.

Peugeot SA posted larger sales of premium-priced cars in 2013, but it did not reveal any expectations about its 2013 revenues or an outlook for the current year. The company reported that 42% of its sales were outside Europe, and explained its goal is to bring this number up to 50% by 2015. Peugeots sales on the Chinese market also rose 26%, which is a faster growth than the markets overall 19% growth.

Peugeot SAs shares fell to EUR 10.53000 in Paris by 14:10 GMT, down 8.28% on the day, and its one-year return rate is up 69.12%.