Analysts said the issue highlights the auto industry's return to favor with investors and PSA's own sales and financial success.
"The interest rate PSA is paying is not very generous, and a 10-year maturity is a very long time in such a cyclical, volatile sector as the car industry," a fund manager at a large French insurer said. "Yet, they have had excellent sales and profitability. That deserves a hefty premium in such uncertain times."
PSA's global sales are up 11.4 percent to 2.07 million vehicles in the first eight months of 2001 compared with the same period in 2000.
Despite their already high valuation, Commerzbank Securities recently put an "accumulate" recommendation on PSA shares. The shares are up 25 percent so far this year to the 50 euro range after being up more than 30 percent, while the CAC 40 index of France's largest listed companies has fallen 24 percent.
PSA says it will use the money "to reinforce its balance sheet" by securing long-term finance at "favorable" interest rates.
The paradox is that PSA is cash-rich. At the end of last year, PSA said it had cash reserves of about $1.25 billion, but some analysts put the size of the hoard at up to $4.5 billion.
Analysts think PSA will use the money to repay short-term loans, notably those it took to finance the purchase of the automotive business of Sommer-Allibert on behalf of Faurecia, its auto components subsidiary. PSA said the operation cost some $1.35 billion.
Bankers say the money also can be used to help finance PSA's research and development plans or pursue its share buy-back program, which has strengthened the Peugeot family's grip on the company.
"What we're doing today is like buying health insurance," said Hugues Dufour, PSA's chief spokesman. "The healthier you are, the better terms you get."