Peugeot cap hike not on agenda as starts union talks

PSA Peugeot Citroen denied a report it needs to raise cash from shareholders as the loss-making French carmaker began five months of talks with unions on Wednesday aimed at turning the business around.

News website La Tribune said Peugeot was considering a new capital hike after burning through 2.5 billion euros ($3.2 billion) of cash in the past year, a move it said would likely dilute the Peugeot family's stake.

"A capital increase is not on the agenda since the financial security of the group ... is at a high level and was reinforced in the first quarter by the success of bond issues," a spokesman for the carmaker said.

He pointed to the 7.3 billion euros in cash reserves and 3.2 billion in undrawn lines of credit the group had as of the end of last year.

"Our responsibility is to guarantee the group's future, whatever the market conditions," the spokesman added. "The priority today is to restore the group's profitability, the group is focused on putting the operational levers into action."

Shares in the company, down 3.3 percent in earlier trading, were 2.3 percent lower by 1205 GMT, slightly underperforming the market. The shares are up more than 30 percent since the start of the year after losing nearly half of their value in 2012.

La Tribune said discussions were underway at Peugeot and within the family, which owns 25 percent of the company and 38 percent of voting rights, citing an unnamed source close to the matter.

One trader was skeptical about talk of a capital hike, but said speculation could resurface that Peugeot might raise money by shedding stakes, such as in car parts supplier Faurecia and Zodiac Aerospace

Peugeot has been running losses of up to 200 million euros a month and does not expect a return to profit until 2015. The company is battling overcapacity in Europe, where car demand has slumped due to the weak economic climate and a squeeze on consumer spending. The group is cutting thousands of jobs and closing a plant near Paris.

The carmaker said on Wednesday it had begun talks with unions and staff representatives aimed at finding ways to help to turn around the company and keep a strong base in France.

Philippe Dorge, executive vice president, human resources, said in a statement the talks would run until October.

The carmaker said in April it would seek concessions from French unions to help meet turnaround targets after sales fell 6.5 percent in the first quarter. It aims to halve its 2012 cash consumption of 3 billion euros this year.

La Tribune said Peugeot was expected to consume another 1.5 billion euros of cash in 2014.

The news site also said it was uncertain whether U.S. partner General Motors , which owns 7 percent of Peugeot after participating in the group's most recent capital hike last year, would take part in any fresh cash call.

($1 = 0.7779 euros)

(Reporting by Gilles Guillaume, Christian Plumb and Pascale Denis; Editing by Jane Merriman and Mark Potter)