PARIS (Reuters) - Shares in PSA Peugeot Citroen
A draft agreement, which Peugeot hopes to conclude this year, would envisage state-owned Dongfeng Motor Co Ltd <0489.HK> and the French government each contributing 1.5 billion euros to acquire matching stakes of between 20-30 percent, people with knowledge of the matter told Reuters on Friday.
Peugeot, among the worst casualties of a six-year European car sales slump, is seeking more cooperation with Dongfeng or another automaker as it struggles to cut costs and losses that have threatened its survival.
Responding to the report, PSA issued a statement reaffirming that it was examining new industrial and commercial projects with different partners, together with the financing that would accompany them.
PSA stock was 10.19 percent lower at 11.105 euros by 1304 GMT as analysts noted the capital hike would automatically reduce the value of existing shares in the car-maker.
"Depending on terms we would likely regard such a large capital raise as a negative for existing shareholders given the likely dilution," analysts at Citi Research said in a note.
Chief Executive Philippe Varin said in July that Peugeot was on track to beat its 2013 goal of halving its industrial cash burn to 1.5 billion euros. Making further inroads into the Chinese market is a key part of its bid to increase global sales.
The 3-billion-euro cash injection would amount to 68 percent of PSA's 4.39-billion-euro market value. It would be worth about 40 percent of the new share capital and also dilute the 7 percent stake held by U.S. partner General Motors Co
The Peugeot family would lose control of the company because the cash injection would dilute its 25.4 percent stake and 38.1 percent in voting rights.
"There is no great secret, Peugeot is on the look-out for partners," Finance Minister Pierre Moscovici told French radio.
"PSA's financial situation is not difficult ... the main thing is making sure there is an industrial logic to this."
French trade unions said at the weekend they were open to the prospect of the state taking a stake in PSA but the key question was the survival of local jobs and who ultimately secured control of the group.
(Reporting and writing by Mark John; Editing by Giles Elgood)