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France Has No Plan for Peugeot Stake: Ministry Source

Hasna Hourri looks at Citroen cars at a Citroen showroom in Paris, France.
Antoine Antoniol | Bloomberg via Getty Images
Hasna Hourri looks at Citroen cars at a Citroen showroom in Paris, France.

France has no plans to support ailing carmaker PSA Peugeot Citroen with a stake purchase, Prime Minister Jean-Marc Ayrault said, cooling speculation of a cash injection to ease the company's problems.

The comment came a day after Peugeot, suffering falling sales in a depressed European car market, highlighted the scale of its woes by taking a 4.1 billion euro ($5.5 billion) writedown on the value of its plant and other automotive assets.

"Regarding the purchase of a stake in this company, it is not on the agenda because PSA is not asking for it," Ayrault told reporters in Grenoble.

"We do have a tool, the FSI (France's sovereign-wealth fund), which can if necessary take a stake. But today this question is not being looked at," Ayrault said.

A spokesman for the FSI said the organisation is not working on any plan to invest in Peugeot. Peugeot declined comment.

Although PSA's writedown was a non-cash accounting item that does not affect the group's liquidity or solvency, it reflected Europe's worsening market outlook and prompted speculation the state might intervene.

"The writedowns reflect Peugeot's difficulties, namely that it concentrated too much on growing in Europe and ended up missing out on international growth and alliances," said Harry Wolhandler, chief executive of Amilton Asset Management.

"We're staying away from the stock for now."

Budget Minister Jerome Cahuzac had said earlier France might consider investing in Peugeot, helping send its shares higher.

"It's possible," Cahuzac told BFM Television. "This company must not and cannot disappear and we must do what it takes for this company to survive."

Yet a source in the finance ministry played down Cahuzac's comments, saying the priority for Peugeot was to pursue its recovery plan and strengthen its alliance with General Motors.

Peugeot shares lost most of their early gains and were up 0.8 percent at 5.92 euros by 1300 GMT.

More Pessimistic Outlook

PSA could have other fundraising options before it has to resort to state help. It could sell its stake in parts maker Faurecia or even its financing arm Banque PSA, but such disposals would do little to address the group's underlying problems.

Unlike domestic rival Renault , the French state has no holding in Peugeot. France nationalised Renault after World War Two and still holds a 15 percent stake. Peugeot remained private and is 25 percent owned by the Peugeot family.

The Peugeot group has already had one big helping hand from the government, in the form of a 7 billion euro loan guarantee agreed late last year for the financing arm Banque PSA Finance, which is still awaiting EU approval.

Traders and analysts said the impact of the writedown was offset by the fact it was a non-cash charge and by speculation the state could support the company's capital base.

"The (writedown) measure will not hit cash flows, nor will it affect liquidity or solvency," a Paris-based trader said. "It does however show that the outlook for a recovery in the European market is more pessimistic than it was six months ago."

Any state investment in Peugeot would be a "last resort", newspaper Liberation said, citing unnamed sources. Peugeot is one of the companies worst hit by Europe's protracted sales slump. It is cutting 8,000 jobs and closing a factory to stem losses approaching 200 million euros a month. The company has pledged to return to breakeven late in 2014.

The CGT union said the government's job was not to come to the rescue of Peugeot's shareholders but to support employees' demands to keep all plants open and to give guarantees on jobs.

The Paris-based company said the writedown did not affect plans to reduce cash burn by half this year or its earlier forecast that net debt would be cut to 3 billion euros for the end of 2012.

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