PSA Peugeot Citroen has announced terms of a EUR1bn (GBP833bn) share sale to fund its alliance with General Motors, offering a big discount to draw in funds for overseas expansion and new models.
Peugeot said it would offer 16 new shares for every 31 existing shares held by investors at EUR8.27 each, a 42% discount on its closing stock price on Monday, Reuters reported.
The capital increase, underwritten by a syndicate of banks led by BNP Paribas, Morgan Stanley, Société Générale and HSBC, will take place from 8-21 March. The Peugeot family and General Motors have committed to take 31% of the shares issued, the company said.
“This will allow us to accelerate our international expansion and our move into higher-end models faster than we would have been able to do on our own,” chief financial officer Jean-Baptiste de Chatillon reportedly said on a conference call.
Peugeot also said it would not pay a dividend for 2011 because it wanted to “give priority to allocating financial resources to the group’s development”.
Asked about the discount, de Chatillon said it was within normal ranges for a rights issue that would last roughly two weeks.
Analyst opinion was divided on the discount with one London-based analyst telling Reuters it was “very steep.”
“I suppose that’s the price to get it underwritten,” he added.
But Deutsche Bank analyst Gaetan Toulemonde argued that many rights issues in the two years had been done with such discounts, pointing to a similar one done at a roughly 25-30% discount by Michelin late in 2010.
“The environment for the auto space is probably a little worse in terms of outlook, overcapacity and so on,” he said.
The capital hike is being done as part of the alliance announced by Peugeot and General Motors on 29 February, which aims to save US$2bn via pooling purchasing and research and development, as well as building vehicles on shared platforms.
GM and Peugeot will develop at least four vehicles together by 2016, GM said in a regulatory filing with the U.S. Securities and Exchange Commission on Monday. The term of the pact is 10 years.
After the capital increase, GM will hold a 7% stake in Peugeot for which it will pay roughly EUR320m.
Meanwhile, the Peugeot family has committed to exercise 32.8m preferential subscription rights, putting in a total of roughly EUR140m. After the capital increase, the Peugeot family will hold 25.2% of the capital and 37.9% of the voting rights, Reuters said.