MILAN - Fiat will ask shareholders for 2.5 billion euros in a new capital increase to help revive its car arm, a financial source said on Monday, but investors said they wanted to see a realistic industrial plan before buying new shares.
"The capital increase will probably be around 2.5 billion euros," the financial source told Reuters after Italian newspapers on Sunday put values on the capital increase that ranged from 1.7 billion to 3.0 billion euros.
"The board will have to decide on the exact amount and on the method of doing it at its meeting on February 28," the source said.
A capital increase of 2.5 billion euros ($2.68 billion) would compare with the group's current market capitalization of 4.7 billion euros after its shares more than halved in value last year.
A banking source said a formal agreement with the creditor banks would take "some weeks" to hammer out.
With markets still deeply depressed, Fiat will have to show it is doing its part -- including selling some of the family jewels and committing hefty amounts of cash to relaunching its 104-year-old car-making arm -- to sell that much stock, investors said.
"The possible capital increase could get interesting if it is linked to a concrete industrial plan. How much money they are going to be able to get will depend on what assets they sell and for how much," said Mario Spreafico, a fund manager at Banknord.
FIAT AVIO AND TORO UP FOR GRABS
After meeting the banks on Saturday, Fiat said asset sales were going ahead as planned but made no mention of aviation arm Fiat Avio or insurer Toro, the most likely candidates for divestment and which could raise as much as four billion euros.
Toro Chairman Gabriele Galateri confirmed on Monday the sale of the insurer was a possibility. Last week, French aerospace group Snecma and Italian defense firm Finmeccanica said they were interested in buying Fiat Avio.
Media have reported the banks, led by Sanpaolo IMI, Capitalia, Intesa and Unicredito,- had promised to guarantee the capital increase. Last year, the banks threw Fiat a three billion-euro financing lifeline.
Fiat's share price on Monday slipped 0.4 percent to close at 7.63 euros, its lowest close in nearly 20 years.
The Financial Times reported new shares could be offered at a 30 percent to 35 percent discount to market prices.
THE AGNELLIS MUST PUT UP CASH
"If Fiat puts forward a credible industrial plan, we will look at it," said Filippo Montesi, a director at Banca Ifigest in Milan. "Investing in Fiat at the moment is certainly not going to bear fruit in a matter of months, so it must be backed up by the clear will of Fiat to make the turnaround work."
Investors agreed Fiat needed to invest more heavily in its core carmaker, which last year made an operating loss of 1.3 euros to 1.4 billion euros. It also must produce sexy new models to claw back market share and put an end to Fiat Auto's cash burning history.
Fiat's controlling Agnellis have agreed a 250 million-euro capital increase at a family holding and the cousins are reportedly planning to meet in early March.
The Agnellis own about 30 percent of Fiat via other holding companies Ifi and Ifil and another 4 percent via other units.
A further 19 percent of the company is owned by banks Sanpaolo IMI, Deutsche Bank and Mediobanca, insurer Generali and four equity funds.
Ifigest's Montesi expected leading shareholders to put forward about one billion euros with another 1.5 billion being sought from an offering to institutional and retail investors.
Media say Fiat has asked partner General Motors to add two billion euros to the pot, possibly in return for delaying or cancelling a "put" option that could force GM to buy the 80 percent of Fiat Auto it does not own from next year.
Cash could come from the state, keen to keep Italy's largest private manufacturer Italian. But on Monday, Industry Minister Antonio Marzano said emergency government intervention no longer looked necessary.
Financiers Roberto Colaninno and Emilio Gnutti, once allies in the 1999 takeover of Telecom Italia, have both drawn up plans to invest in Fiat, while a group of businessmen based around Fiat's home town of Turin also could be called on to invest.
Fiat's board is due to study Colaninno's plan, which sees him taking over as CEO and investing more cash in a core handful of new cars, on Feb. 28. The board is expected to reject his offer, prefering to keep Fiat's steering wheel to themselves.