Dongfeng Prepares Buying 30% Shares of PSA by 10 Billion Yuan

Under pressure of huge loss, PSA is researching for a big buyer. Dongfeng Auto, which is the second largest auto group, is one of potential buyers.

Yesterday, inner staff of Dongfeng confirmed with reporter of that their company has contacted with PSA at first phrase. It proposes to buy 30% shares of PSA by 10 billion Yuan. However, the inner staff stressed that it is only at the first phrase, and it is still unsure for future.

The rumor went out firstly from an investor telephone conference on 29 Sept. relevant officer of Dongfeng Auto claims that the company has employed an investment bank to make up a plan, which is aiming for exchanging 10 billion Yuan for 30% shares of PSA. The officer said that those companies have talked with each other already, but Dongfeng is still prudent.

A reporter who attended the conference said that because PSA found a joint venture auto company with Changan Auto in China. Besides, GM who is the partner of SAIC is the second large shareholder of PSA, Dongfeng Auto is worried about the complicated situation it facing after the share buying.

However, relevant staff emphasis at telephone conference that the company asking for a stable and cautious research for the trade to protect its joint venture DPCA Auto and profit of its quoted company in Hong Kong. (Dongfeng Group, 00489.HK)

PSA is the second large auto company of Europe. Under the influence of European economy crisis, annual sales of PSA of 2012 are 55.446 billion Euros, which has decreased 5.2% over the same period of last year. According to the finance report, net loss of 2012 is up to 5.01 billion Euros. Global sales of PSA for the last 3 years have decreased 17.5%.

The most important problem for PSA now is cash flow is drying up. At present, PSA lose 7 million Euro every single day. It has no capital left at the end of 2012. Now net debit is around 3 billion Euros and will climb up to 4.5 billion in 2014. PSA has sold estate and sub-companies for 1.5 billion Euros, and will shut a France plant in 2014 and cut 11.2 thousand positions in France.

“Dongfeng has to consider about the risk, because stock price of PSA has risen already. 30% shares ask for 10 billion Yuan, it is not a good deal.” Some attending conference people said.

PSA sales have dramatically dropped down globally, but performance in Chinese market is prominent. In the first half this year, DPCA Auto, PSA joint venture in China, has sold 276.9 thousand, which has increased 32.7% over the performance of last year. And sales revenue is up to 30.7 billion Yuan, which has increased 43%. Chinese market becomes the largest market for PSA from May this year.