PSA may sell Faurecia stake to reduce debt, analyst says
PARIS -- Shares in PSA/Peugeot-Citroen and its partsmaking subsidiary, Faurecia, rose sharply on Monday on speculation the struggling French automaker may sell its stake in the supplier to reduce debt.
PSA rose as much as 13 percent after Paris-based brokerage CM-CIC said the carmaker may be forced to dispose of its 57.4 percent Faurecia stake to raise between 1.2 billion euros ($1.6 billion) and 1.5 billion euros.
"PSA's persistent problems and inability to find fast and durable solutions mean that it is increasingly likely to sell off more assets," Florent Couvreur, a Paris-based analyst with CM-CIC, said on Monday in a note to clients. "We therefore believe that the stake held in Faurecia could be the next disposal on the list."
Both companies declined to comment.
PSA has already sold assets including its Gefco logistics arm and its Paris headquarters, which is now leases, as it struggles to reverse mounting losses. The automaker also will cut more than 10,000 domestic jobs and close an assembly plant near the French capital.
PSA said in July that it was burning through cash at a rate of 200 million euros a month as the European auto market headed for the worst sales in almost two decades.
The unconfirmed sale speculation pleased investors because a disposal would allow PSA to deconsolidate Faurecia's 1.6 billion euro debt from its own 2.5 billion total, Credit Suisse analyst Erich Hauser said.
Selling Faurecia could nonetheless hurt PSA in the longer run, he said. Like Gefco, the parts business has consistently outperformed its parent.
"The market's reading this as positive because it would get rid of Faurecia's debt," Hauser said. "But Peugeot would just be trading future earnings for balance sheet repair."
Faurecia contributed 1.8 billion euros in cumulative earnings to PSA in 2006-2012, while the core auto division lost 1.2 billion, according to Credit Suisse data and estimates.
Faurecia, which makes seats, instrument panels and exhaust systems, ranks No. 6 on the Automotive News Europe list of the top 100 global suppliers with worldwide sales to automakers of $22.5 billion in 2011.
PSA may also have been buoyed by market rumors of an imminent government stake purchase, Credit Suisse said. The carmaker faces a "serious crisis" and may need more action to ensure its recovery, French Finance Minister Pierre Moscovici said on Sunday.
"It will probably be necessary to go further," Moscovici said in a France Inter radio interview, without elaborating.
The government last month appointed a PSA board director and demanded the nomination of a staff representative in return for an 18.5 billion euro debt rescue including up to 7 billion euros in state loan guarantees.
Reuters and Bloomberg contributed to this reportContact Automotive News