Paris (AFP) - Shares in struggling French auto giant PSA Peugeot Citroen plunged on Monday amid talk of a capital increase and tie-up with Chinese firm Dongfeng as the indebted company fights for its future.
Peugeot shares dove 9.1 percent to close at 11.25 euros in response to media reports of a capital increase while the Paris market was essentially flat.
The group, a top name in French industry, is in trouble and struggling to carry through a deep restructuring with job cuts and a plant closure.
The problems at one of France's industrial leaders come as the socialist-led government has made raising the rejuvenation of French industry a key policy plank, together with reducing high unemployment and promoting the "made in France" label.
The company, which is France's biggest auto group and Europe's second after Volkswagen, has already linked with US auto giant General Motors in an attempt to develop a new business strategy.
A government-commissioned report found that PSA was in deep trouble because of decades of strategic mistakes, mainly because it had not made the most of globalisation, and a tie-up in China would be a big step to remedy that.
PSA Peugeot Citroen has already, in effect, been rescued by means of French state support for its credit arm through a 7.0-billion-euro ($9.5 billion) loan guarantee.
The latest rumours suggest a new total cash injection of between 2.5 and 3.0 billion euros.
PSA has not said that it will raise capital, repeating merely that it was in negotiations with "different partners", but also said that none of the projects had "got to a mature stage at this point."
Media reports suggest Dongfeng and the French state could each subscribe to 1.5 billion euros' worth of shares in PSA.
Such an increase in the number of shares would dilute the holdings of existing shareholders, and this has caused the price of PSA shares to fall.
One stock analyst in Paris, who declined to be named, commented: "Given the risk of such a big dilution without the creation of any extra value, we continue to think that we shall stand aside from the shares."
Peugeot is the standard-bearer for an auto sector that employs more than 100,000 people in France, he said, and "with the presence of French state capital, the arrival of Dongfeng seems to us more likely."
At brokers Aurel BGC, analyst Tangi Le Liboux said that "the Peugeot family, which currently controls 25.4 percent of the capital, would accept to lose this control."
The family controls 38.1 percent of the voting rights.
He noted that the rumoured capital restructuring would enable French interests, in the form of the Peugeot family and the French state, to retain control of the company.
Such an arrangement would make less likely the chances of a tie-up with Opel, the European arm of GM, which would "lead to job cuts and factory closures," he said.
However, he also commented that a structure involving "GM, the Peugeot family, Dongfeng and the state as shareholders, would appear to be complicated."
The Wall Street Journal, citing someone close to the matter, reported that the PSA board would meet on October 22 to consider a possible injection of funds by Dongfeng.
A spokesman for PSA confirmed the date, but said that the meeting had been scheduled a long time ago.Peugeot PSA Citroen lost 426 million euros in the first half of 2013, about half of what it had lost in the same six-month period a year earlier.