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Peugeot-Citroen, Renault Repay One Third Of Loan Early

Peugeot-Citroen and Renault’s early repayment of €1 billion each of government loans totalling €6 billion reflects well on their stewardship during the depths of the recession and augurs well for their financial future, according to investment banks.

Renault and Peugeot-Citroen both borrowed €3 billion early in 2009 from the French government to help tide them over the most difficult part of the recession. Both loans carried a six per cent interest rate, and came with strings attached. This included an agreement not to shut down any French factories for the duration of the loans, originally set for repayment by 2014.

This was believed to have stopped Peugeot-Citroen implementing its plan to move more production from France to Eastern Europe, while Renault found itself in hot water when it appeared to try and move some production of its big selling Clio to Turkey.

The companies paid back €1 billion each on September 10.

Both companies wanted to repay the loans early because the terms of the government deal had become onerous. The loans were linked to profitability, and according to Fitch Ratings, this made them more expensive because both companies had improved their bottom lines faster than expected. It is now less expensive to borrow on regular markets, than on the government’s terms.

Citigroup Global Markets analyst Philip Watkins, pointed out that both Renault and Peugeot-Citroen have junk credit ratings, but that their financial improvement and ability to repay some of the loans early was a vote of confidence in their balance sheets.

Neil Winton – September 15, 2010

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