French carmaker PSA Peugeot Citroen announced the terms of a 1 billion euro (833 billion pound) share sale to fund its alliance with U.S. peer General Motors, offering a big discount to draw in funds for overseas expansion and new models.
Peugeot said on Tuesday it would offer 16 new shares for every 31 existing shares held by investors at 8.27 euros apiece, a 42 percent discount to its closing stock price on Monday.
The capital increase, underwritten by a syndicate of banks led by BNP Paribas, Morgan Stanley, Société Générale and HSBC, will take place from March 8-21. The Peugeot family and General Motors have committed to take 31 percent 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 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 calling it very steep.
I suppose that's the price to get it underwritten, he added.
But Gaetan Toulemonde analyst from Deutsche Bank 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 percent discount by tyre maker Michelin in late 2010.
The environment for the auto space is probably a little worse in terms of outlook, overcapacity and so on, he said.
At 0835 GMT, Peugeot shares were down 5.9 percent at 13.37 euros.
The capital hike is being done as part of the alliance announced by Peugeot and General Motors on February 29, which aims to save $2 billion 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 percent stake in Peugeot for which it will pay roughly 320 million euros.
Meanwhile, the Peugeot family has committed to exercise 32.8 million preferential subscription rights, putting in a total of roughly 140 million euros. After the capital increase, the Peugeot family will hold 25.2 percent of the capital and 37.9 percent of the voting rights.
(Reporting by Leila Abboud, Marc Angrand, Christian Plumb; Editing by Mark Potter)