China's Dongfeng still weighing benefits of investing in Peugeot

SHANGHAI Sun Oct 27, 2013 10:45am GMT

A worker drives a car into the park of the Dongfeng-Citroen Automobile Company Ltd. in Wuhan, central China's Hubei province June 26, 2007. REUTERS/Stringer

A worker drives a car into the park of the Dongfeng-Citroen Automobile Company Ltd. in Wuhan, central China's Hubei province June 26, 2007.

Credit: Reuters/Stringer

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SHANGHAI (Reuters) - China's Dongfeng Motor Group (0489.HK) is still weighing the benefits of investing in loss-making PSA Peugeot Citroen (PEUP.PA), a top Dongfeng executive said, hinting that a deal with the French carmaker could take a long time.

PSA is preparing a 3 billion euro ($4 billion) capital increase, in which Chinese partner Dongfeng and the French government will each contribute 1.5 billion euros and acquire 20 to 30 percent of the troubled carmaker, sources with knowledge of the plan told Reuters earlier this month.

The sources added that Peugeot hopes to conclude the deal this year.

However, at an industry forum in Shanghai at the weekend, Dongfeng's general manager Zhu Fushou suggested that China's second-biggest vehicle maker is not in a hurry to make that investment.

"If we can complement each other's advantages, if we can achieve synergies, we may go ahead to do it. Otherwise, we would not do it,' Zhu said.

"As a partner, we are surely concerned about the overall business of PSA. Last year, it made a net loss of 5 billion euro ($6.90 billion)."

To illustrate the complexity of such a transaction, Zhu cited a recent deal in which Volvo acquired a 45 percent stake in Dongfeng's commercial vehicle unit.

"Regarding the strategic alliance between Dongfeng and Volvo, we made preparations for several years before reaching a consensus. We both agreed that we would greatly benefit each other."

Zhu reiterated Dongfeng's global ambition, saying that there was an unstoppable trend for Chinese automakers to expand overseas, despite headwinds including low awareness of Chinese brands, inexperience in international operations and trade protectionism.

"For China's auto industry, the progress and determination of globalization is irreversible ... but the road ahead will be bumpy."

In addition to PSA, Dongfeng also operates joint ventures with Nissan Motors Co (7201.T) and Honda Motor Co (7267.T) in China, the world's biggest auto market.

(Reporting by Samuel Shen and Norihiko Shirouzu; Editing by Jeremy Laurence)

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