| YOKOHAMA, Japan
YOKOHAMA, Japan Renault and Nissan chief executive Carlos Ghosn on Friday ruled out a merger between the two auto makers he heads, but said he would review the capital structure of the partnership after pressure from investors in the struggling French car maker.
Renault (RENA.PA) has around $20 billion (12 billion pounds) in capital tied up in its 43 percent stake in Nissan Motor (7201.T) and some investors were disappointed that Renault's six-year business plan announced this month lacked any immediate plans to free up cash for the company's growth.
Some analysts have suggested much closer ties, including full merger, would reduce the inefficiency of running two separate companies, while others have recommended Renault cut its stake in Nissan. Renault only needs one-third of Nissan to retain a controlling stake.
In an interview with Reuters at Nissan's headquarters in Yokohama, south of Tokyo, Ghosn professed to being surprised at the level of expectation for a structural change. But he said the issue would be addressed, hopefully within three years, which some analysts said was encouraging.
"We will be reviewing the financial structure not to end up with a merger ... but to respond to the main concern of investors saying, 'Maybe you're using too much capital for your financial structure,'" Ghosn, the CEO of both Renault and Nissan, said.
"Hopefully it will come before (the halfway point of the Renault business plan through 2016)."
Investors have punished Renault shares since the company announced its business plan on February 10, with the stock falling almost 10 percent since then.
After Ghosn's comments, Renault shares were trading up 1.4 percent in Paris.
"We cannot see any rationale for a full merger in order to further capitalise on the structure of the alliance, but it is clear from Renault's current valuation that investors are not willing to give full credit to the current capital structure," said Kristina Church, an auto sector analyst at Barclays Capital.
"We firmly believe that more positive sentiment towards the Renault core business (via its stronger geographical presence in Eastern Europe than peers and successful Dacia brand) is what is required for a re-rating in the Renault share but we are encouraged by Mr Ghosn's focus on finding ways to generate a more positive valuation by looking into the current capital structure."
Nissan holds 15 percent of Renault, which has a total market capitalisation of around $18 billion.
"You have to study all the consequences," Ghosn said, calling the market's dissatisfaction with the capital structure his biggest challenge.
"This is a very delicate balance between the two companies. You need something that makes all the shareholders happy, both at Renault and Nissan," he said.
Ghosn, born in Brazil to Lebanese parents, is seen as something of a business superstar in Japan since taking over as Nissan CEO in 2001, with the company deep in debt and losing money. He even has a manga comic book on his life.
He has struggled to replicate that success with Renault, however, with the share price down and sales stagnating since he took the helm in 2005. It has been dependent on a shrinking market in Western Europe and has yet to enter the booming China market -- now the world's biggest.
However, it is ramping up sales in Brazil, Russia and India although Ghosn has said it does not plan to enter China before 2013.
(Editing by Lincoln Feast)