08 August, 2019

Dongfeng reported to be considering its stake in PSA Group

Chinese carmaker Dongfeng Motor is exploring options over its €2.2 billion stake in PSA Group, which may also include a potential divestment.

Dongfeng has a 12.2% shareholding in the French carmaker and has held talks in recent weeks with potential advisors about ways to monetise all or part of this, according to sources quoted by Automotive News.

As part of the strategic review, Dongfeng has discussed possible transactions including a straight sale of PSA shares or issuing exchangeable bonds backed by PSA stock. Dongfeng is hoping such a move will help it stabilise as the global automotive market continues to slow.

The funds would allow Dongfeng to invest in other areas at a time when its rivals are spending billions on electric vehicles (EVs) and autonomous driving systems.

Economic slowdown

The global car market is suffering one of its most turbulent times as legislation, and external companies developing driverless systems, have a deep impact. For China, the market is also suffering due to the ongoing trade war between the country and the US.

Dongfeng, which has a Chinese joint venture with PSA, plans to coordinate with the French company if it decides to reduce its shareholding so that it can preserve a good working relationship. Deliberations are at an early stage and there is no certainty they will lead to a deal, according to those with knowledge of the matter.

The Chinese automaker may hold onto part of its stake in PSA to potentially benefit from future industry consolidation, sources said. PSA said in May that it is open to "any opportunities" to create long-term value amid reports of tie-ups with other automakers.

Well balanced

Any sell-down could upset the delicate balance between Dongfeng, the French state and the Peugeot family, which each own 12.2% of the company. PSA CEO Carlos Tavares said in October that the parties' shareholding pact is stable and that a change is not in the works.

A representative for Dongfeng said the company does not have any information regarding the plan at the moment. Representatives for PSA, the Peugeot family and the French finance ministry declined to comment.

Should the Chinese carmaker decide to sell all or part of its stake in PSA Group, it would move against the plans of its domestic rivals Geely and BAIC, both of whom have made investments in Daimler. Additionally, Geely owns Volvo and LEVC - both have strong footholds in European markets and are developing new technologies, including electric vehicles.