Peugeot may need to raise funds as burns cash: sources

PSA Peugeot Citroen may have to raise funds through a share sale as the loss-making French carmaker burns through cash in a weak market, two sources familiar with the situation said on Wednesday.

Peugeot, which has been running losses of up to 200 million euros ($257 million) a month and does not expect a return to profit until 2015, said a capital hike was not on the agenda, as it started talks with unions about turning around the firm.

However, one of the sources said its financial situation had deteriorated to the point it would need to raise cash in the coming weeks or months, and that a capital increase or asset sales were possible in the near future.

"The situation is extremely difficult, the company is still burning cash like crazy, its credit rating is horrible and it's increasingly difficult to access banking lending," the source told Reuters on condition of anonymity.

Carmakers have been hit hard by a plunge in demand in recession-hit Europe. Peugeot has suffered more than most, in part because it makes fewer sales in faster-growing emerging and luxury markets than many rivals. The group is cutting thousands of jobs and closing a plant near Paris.

The second source, who also declined to be identified, said a capital increase was not imminent, but would be needed if Peugeot was unable to meet its targets.

"The market is tough - are they going to be able to deliver on their plan or not? If they are not they will need fresh money," he said.

Europe's car market ended a streak of 18 straight months of falling sales in April, though a number of one-off factors suggest a sustained recovery is some way off.

At 1430 GMT, Peugeot shares were down 4.3 percent at 7.044 euros.

CASH CONCERNS

Earlier on Wednesday, news website La Tribune said Peugeot was considering a new cash call after burning through 2.5 billion euros in the past year, prompting a denial from the company.

"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.

The first source told Reuters the Peugeot family's holding in the carmaker would be diluted by any capital hike, but that they could not afford to set any limits, adding that Peugeot would seek to attract French banks, the French state, existing shareholder General Motors and foreign investors.

"All options are on the table," the source said. "The company needs to do what it takes to save the business."

The Peugeot family owns 25 percent of the company and 38 percent of voting rights.

GM finance chief Dan Ammann said in February the U.S. automaker, which owns a 7 percent stake in Peugeot, had no plans to put more cash into the automaker.

In February, GM wrote down $220 million, or about half, of its investment in its French alliance partner. It originally paid $423 million for its stake.

GM officials were not immediately available to comment on Wednesday about whether its position had changed.

Peugeot could also look at selling its 57 percent stake in French car parts supplier Faurecia , the first source said, though he added there were not many potential buyers.

The carmaker began talks with staff representatives and unions on Wednesday. Philippe Dorge, executive vice president, human resources, said 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.

($1 = 0.7779 euros)

(Additional reporting by Gilles Guillaume in Paris and Ben Klayman in Detroit; Editing by Jane Barrett and Mark Potter)