(The following statement was released by the rating agency)
Nov 12 - Peugeot SA will benefit from the state guarantee for up to EUR7bn on upcoming bond issuance by its financing arm, Fitch Ratings says. However, we believe this benefit may be reduced by possible restrictions on the parent group's independence to implement further strategy changes.
We expect the French state guarantee to facilitate and secure Banque PSA Finance's (BPF) capital market refinancing for the next five years, enabling it to offer cheaper loans to customers. But detailed and practical mechanisms and the exact cost of the guarantee including the premium paid to the state to align with theoretical fair market prices are yet to be determined. BPF's CDS and cash spreads have widened substantially since summer 2011 and then again since March 2012. This has weighed heavily on the group's total cost of funding and its ability to compete with close peers in the new car market.
However, the deal requires additional commitments from PSA on top of the direct cost to be paid for the guarantee. The group will have to set up a guarantee monitoring committee including representatives from the state. It will also appoint two new board members, including an employee representative and an independent member, and will be restrained from paying any dividend as long as the guarantee is in place.
We do not believe that PSA's recently announced plan to close its factory in Aulnay and reorganise the one in Rennes will be blocked by the state and abandoned. Nonetheless, we are concerned that PSA's ability to fully implement its strategy without any involvement from the state, in particular to decide on further restructuring measures or engage in corporate activity, may be limited. According to the French state's communique, the new committee will have to agree on all decisions that could affect PSA and its main subsidiaries' perimeter and activities.
Uncertainty remains regarding whether this guarantee will be considered state aid by the EU and therefore whether it can go ahead. However, we believe the total net price to be paid by BPF for future bonds, including the premium paid to the state to reflect theoretical fair market prices, should mitigate the anti-competition concerns. The guarantee will also be subject to a vote by the French parliament but we do not expect this to be a blocking issue.
The French state guarantee on future BPF bonds drawn down over 2013-2015 for up to EUR7bn is one of several measures announced by PSA's captive finance subsidiary, which provides financing to the group's dealers and customers, to boost its liquidity. These measures include up to EUR11.5bn of cash facilities from BPF's main banks, increased securitisation and the creation of a saving account passbook to collect retail customers' savings.
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