Fiat may soon up its stake to 46%.
Just days after boosting its stake in Chrysler to 30%, Fiat is preparing for another big increase – though to get to 46%, it will have to pay off or refinance a large chunk of the money loaned to the U.S. maker as part of its 2009 bankruptcy bailout.
With Chrysler’s balance sheet still in the red there seems little likelihood it will come up with the case on its own, and Sergio Marchionne, CEO of both Chrysler and Fiat, has indicated he is now talking with a variety of lenders who could step in and help refinance the money owed to the U.S. and Canadian governments.
The Italian executive has complained that Chrysler is paying too high an interest rate on the bailout loans, so switching to a new lender could improve the maker’s finances, as well as permit Fiat to take a larger stake.
But there is little doubt that Marchionne wants to increase Fiat’s holdings as soon as possible, suggested the Italian newspaper Corriere della Sera. “He wants to do it by June,” the paper reported Thursday. “He might be able to do it sooner.”
Meanwhile, sources told Automotive News Europe that this goal is “technically possible,” but will depend on how talks with new lenders work out.
Fiat was given a 20% stake in Chrysler after the U.S. maker emerged from bankruptcy in mid-2009. And the White House car czar then set three hurdles for the Italians to meet that would each increase that stake by another 5%. It has met two of these, introducing a high-mileage engine at the Chrysler powertrain plant in Dundee, Michigan, and expanding Chrysler’s global sales and distribution.
“There is a lot of flexibility in the contract to achieve control of Chrysler,” Philippe Houchois, head of European auto research at UBS in London, told Automotive News Italian correspondent Luca Cifferi.
Another 16% stake will be made available to Fiat when it reduces its government debt below $4 billion. It received $7.4 billion in aid in June 2009.
That would leave another 5% stake within Fiat’s grasp. To get that share it will need to launch a vehicle in the U.S. capable of achieving 40 mpg, and that is expected by the end of 2011.
In fact, Marchionne has expressed his hope of getting to 51% before the end of 2011. But to gain a majority share Fiat must not just reduce its government loan obligations but pay off the debt entirely.
One other question remains unanswered. Chrysler is clearly expecting to stage an IPO to take itself public – and raise billions of dollars in much-needed cash. But the question is when.
Marchionne was initially buoyed by the success of last November’s General Motors IPO, suggesting it would “plow the way” for Chrysler. But automotive stocks have languished in recent weeks, GM currently commanding less than $30 a share, well below the IPO strike price of $33.
So, Marchionne has suggested, this month, that he may postpone until 2012 the IPO, rather than hold it during the second half of 2011, as initially planned.