Peugeot Citroen to raise €3bn in new capital

PSA Peugeot Citroen, Europe’s second-largest automaker, is planning a two-step capital increase of €3 billion to shore up its financing as the unprofitable French manufacturer consumes cash.

The 118-year-old manufacturer is seeking a cash injection after burning through €4 billion in the last two years as auto demand in its European home region sank.

The new funding is equal to 81 per cent of Peugeot's value and follows a share sale in March of 2012 to raise €1 billion in which General Motors bought a 7 per cent stake that it later sold.

"The cash inflow would reduce leverage and could buy the company some time," Emmanuel Bulle, a Fitch Ratings senior analyst, said in a statement today.

“However, issuing new shares and changing the shareholder structure would not address the key challenges of weak profitability and negative free cash flow from industrial operations.”

Peugeot climbed 35 cents, or 3.4 per cent, to €10.55 and traded up 2.3 per cent in Paris this morning, valuing the automaker at €3.7 billion.

The stock plunged as much as 12 per cent yesterday following reports that the automaker’s board had signed off on the share sale.

The French manufacturer has a target of selling more than 50 per cent of its cars outside Europe by 2015. That figure reached 42 per cent in 2013.

Peugeot is also in the process of changing top management, hiring Carlos Tavares, a former Renault executive, to become chief executive officer later this year.

Peugeot, which reported a first-half operating loss in the automotive unit of €510 million, reiterated last month a target to reduce cash burn by at least 50 per cent to €1.5 billion for 2013 and reach breakeven this year.

Bloomberg