EU Said to Approve French Aid for Peugeot by Next Week

PSA Peugeot Citroen, Europe’s second-largest carmaker, is likely to receive European Union approval for a French government bond guarantee for its banking unit, according to three people familiar with the matter.

The decision allowing the state to back 7 billion euros ($9.26 billion) in bonds may be announced before the carmaker reports first-half earnings next week, said one of the people, who asked not to be identified because the talks are private.

Talks focused on Peugeot’s restructuring plan, which include shutting a plant in its home country and slashing 11,200 jobs, rather than the amount of aid, another person said.

The French government offered to guarantee the bonds for Peugeot’s finance arm to help the carmaker keep down borrowing costs, which is key to offering loans that are competitive with rivals such as Volkswagen AG, the region’s biggest carmaker. Peugeot consumed 3 billion euros in cash in its automotive unit last year and is working to reduce losses amid a sixth straight annual decline in the European auto market in 2013.

“A decision in favor of PSA would secure access to refinancing for PSA’s financial services business which is crucial,” said Sascha Gommel, an automotive analyst with Commerzbank AG in Frankfurt.

Shares Advance

The shares climbed as much as 35 cents, or 4.2 percent, to 8.76 euros and were up 3.3 percent as of 3:02 p.m. in Paris trading. The stock has surged 59 percent this year, valuing the French manufacturer at 3.08 billion euros.

Pierre-Olivier Salmon, a Peugeot spokesman, declined to comment beyond a statement last week from Chief Financial Officer Jean-Baptiste de Chatillon that he wasn’t worried about the EU’s decision.

The regulator in February granted temporary EU approval for the state to guarantee 1.2 billion euros of bonds at Banque PSA Finance, which the carmaker’s finance arm successfully sold in March.

“We are very close to a final decision,” EU Competition Commissioner Joaquin Almunia said in an interview in the French newspaper Le Figaro. “It is a very good work, on both sides.”

Peugeot is also in talks with banks on options to shore up its finances including a capital increase and selling assets such as a stake in Banque PSA, people familiar with the matter said. The talks are still open and there’s no clear direction yet, the people said.

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