Renault will erase its debt in three years, chairman Louis Schweitzer said, a few hours after the French carmaker’s Nissan unit announced it had cleaned up all its net automotive debt in 2002 thanks to record profits.
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“We want to have zero debt by the end of 2005,” Schweitzer told Automotive News Europe during the recent Barcelona motor show.
From a 1.6 billion euro cash surplus in 1998, Renault swung into an automotive debt of 4.8 billion euros at the end of 2000, half its shareholders’ equity. That was after the French company went on a buying spree, acquiring controlling stakes in Nissan, South Korea’s Samsung Motors and Romania’s Dacia.
Helped by the sale of new shares to Nissan and the disposal of non-core assets, debt has been coming down. At the end of 2002, Renault’s debt stood at 21% of shareholders’ equity, or 2.5 billion euros, down from 39% at the end of 2001.
Net debt is gross debt — short- and long-term borrowing — minus cash on hand. Automotive debt excludes the debt of financing arms, which borrow money to make loans.
Zero debt in 2005 “is not a totally unrealistic goal” for Renault, said Standard and Poor’s analyst Virginie Casin. “With the help of Nissan dividends, it’s plausible.”
But analysts say that the bulk of debt reduction won’t happen this year, when they expect Renault sales to remain relatively weak.
Nissan, in which Renault invested E5 billion in 1999, said on April 23 that it had got rid of its net automotive debt.
Profitable Nissan is now able to return the favour through dividends paid to Renault for its 44.4% stake.
Besides, Nissan CEO Carlos Ghosn said last week that the company, should it fail to find attractive investment opportunities, would return cash to shareholders.
