PARIS -- PSA/Peugeot-Citroen today denied a report that it is planning a capital increase to pay down debt.
French newspaper La Tribune said PSA is considering selling new shares after burning through billions of euros of cash in the past year in a move that would likely dilute the Peugeot family's stake. The newspaper cited an unidentified person close to the matter as its source.
La Tribune said the controlling Peugeot family has discussed what percentage of dilution would be acceptable for them. The family owns 25 percent of the company and 38 percent of its voting rights.
It is not certain whether the Peugeot family has the ability to participate in a capital hike and it remains an open question whether General Motors Co. would take part, La Tribune said. GM owns 7 percent of PSA after participating in the group's most recent capital hike last year.
Commenting on the report, a PSA spokesman said: "A capital increase is not on the agenda."
He said PSA had 7.3 billion euros in cash reserves and 3.2 billion in undrawn lines of credit at the end of last year. "Our responsibility is to guarantee the group's future, whatever the market conditions," the spokesman said. "The priority today is to restore the group's profitability, the group is focused on putting the operational levers into action."
PSA said today it remains committed to reducing its cash-consumption rate by half in 2013 and reaching the break-even level by 2014 after burning through 3 billion euros ($3.87 billion) last year.
A capital increase to pay down debt would be highly dilutive to existing shareholders given PSA's market capitalization of 2.6 billion euros and forecasts that its net debt will be 4.6 billion euros at the end of 2013, Morgan Stanley said in a note to investors today. However the company may have little alternative if it wants to maintain critical r&d and capital expenditures, Morgan Stanley said.
PSA started talks with unions today on further spending-reduction measures after reaching agreements with labor leaders in previous weeks on terms for scaling back its French workforce by 17 percent and closing a factory on the outskirts of Paris.
Management told union representatives that PSA wants the negotiations to result in much more than 100 million euros in cost cuts, Christian Lafaye, head of the FO union, said.
PSA's disposals of non-carmaking businesses last year included the sales of the Citer vehicle-rental unit to Enterprise Holdings Inc. for 440 million euros and a 75 percent stake in its Gefco trucking operation to Russian Railways for 800 million euros.
The company said on May 22 that it will shut a French research facility and move most of the site's 660 employees to other locations nearby in another cost-cutting effort.
PSA has been selling bonds, disposing of assets and cutting production capacity to restore profit as Europe's auto market contracts to a 20-year low.
The company sold a 1 billion euro five-year bond in February and its Banque PSA Finance car-loan unit sold 1.2 billion euros in one-year debt in March. The banking division's bond sale is guaranteed by the French state under temporary approval by European Union regulators.
The government agreed last year to back as much as 7 billion euros of Banque PSA Finance's new bond sales. The EU has granted provisional clearance on the lower amount on condition that France submits a reorganization plan by mid-2013 for PSA's recovery that doesn't depend on state aid.
Bloomberg, Reuters and Automotive News Europe contributed to this report