On Monday, the stock price of Peugeot-Citroen tumbled amongst news the government of France could take an ownership stake in the automaker.
The stock price for the carmaker fell by more than 10% Monday, on the reports it was planning a $4.1 billion rights issue, with equal stakes to go to Dongfeng Motor Group from China and the French government.
The rumors were not confirmed by Peugeot, but the automaker said it was amidst an examination of the commercial and industrial development with various partners including the implications that could result from them.
The possible deal could leave Dongfeng, owned by the Chinese government and the government of France, each with control of between 20% and 30% of the carmaker.
It would increase the capital stock of Peugeot by nearly 70%.
Citi warned on Monday that Peugeot was risking losing the advantages it enjoys technologically should it enter a deal with China’s Dongfeng.
A large increase in capital, if that is what they are planning, could potentially give the sign that Peugeot is uncomfortable with is current cash burn guidance, said one European analysts in the auto industry.
The company’s guidance is to cut by half its cash use in 2013, with little reduction through all of 2014.
Peugeot which has a market capitalization of approximately 4.4 billion in euros, had been hit hard from the downturn in the car industry across Europe since the start of the financial crisis.
For the first six months of the year, the carmaker reported negative cash flow of close to 51 million euros, which means it would have to sell some equity to raise the cash it needs.
Despite the recent concerns, using the extra capital said one analyst to finance expansion outside Europe could be a big boon for the French automaker.