Peugeot debt may prevent Mitsubishi transaction

PARIS: PSA Peugeot Citroen, the French automaker weighing an investment in Mitsubishi Motors Corp, may find it difficult to raise money for a stake purchase and to make a case for what analysts say would be an expensive deal.

Buying a 50 percent holding may stretch the finances of Europe's second-largest automaker, which had 2 billion euros ($3 billion) in net debt in the manufacturing and sales divisions as of June 30 and bonds rated below investment grade by Standard & Poor's. The companies have similar market valuations of about $8.5 billion, while Peugeot sells three times as many vehicles and garners four times as much revenue.

"Peugeot doesn't have the liquidity to take a major Mitsubishi stake in cash," said Jens Schattner, a Frankfurt-based analyst at Sal. Oppenheim with a "reduce" rating on the French manufacturer's shares. He predicted that the companies will abandon talks about an equity deal and instead develop further cooperation on building cars.