FCAU Fiat Chrysler Automobiles NV

By Eric Sylvers 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (May 18, 2020).

Milan -- Fiat Chrysler Automobiles NV is in talks to set up a EUR6.3 billion ($6.81 billion) credit line guaranteed by the Italian government, as the Italian-American car maker shores up its finances in the midst of the coronavirus pandemic and works to complete its merger with Peugeot maker PSA Group.

The 3-year credit facility can only be used to finance Fiat Chrysler's operations in Italy, where the company has 55,000 employees and 16 factories. Fiat Chrysler on Saturday said talks on the credit line are being held with Italian bank Intesa Sanpaolo SpA; the Italian finance ministry; and Sace, Italy's export credit agency, which would provide the guarantee.

Like its rivals, Fiat Chrysler has been securing access to cash to address the drop in revenue caused by the pandemic. But Fiat Chrysler is also trying to complete the PSA merger, which would create one of the world's largest car makers. Both companies earlier this week canceled their EUR1.1 billion ordinary dividend they were each supposed to pay on 2019 results.

While Fiat Chrysler this week reiterated its commitment to the merger -- which it said is still on schedule to be completed by the end of March 2021 -- withdrawing the dividend and the talks on the new credit line point to how the pandemic is straining the company's finances.

As part of the merger with PSA, Fiat Chrysler is supposed to pay its shareholders a EUR5.5 billion special dividend. While both sides say they are sticking to the agreed merger terms, analysts have said there could be some adjustments once it is clearer how the two companies fared in the wake of the coronavirus pandemic.

Fiat Chrysler closed the first quarter with about EUR18 billion in cash and liquid assets, and further shored up its position by tapping nearly EUR6.5 billion from its existing credit lines in April. The company has another EUR3.5 billion credit line it can access.

An Italian government decree stipulates that companies seeking state support, including guaranteed loans, to help overcome the economic damage caused by the virus can't pay a dividend on 2019 profits. There is no rule that directly calls into question Fiat Chrysler's EUR5.5 billion special dividend.

Fiat Chrysler lost EUR1.7 billion in the first quarter as revenue fell almost 16%. The second quarter promises to be equally challenging as the U.S. and Italy, the company's main markets, are still under partial lockdowns that continue to eat into sales. Consumer spending and industrial production have plummeted in both countries and their economies are on track for large contractions this year. Fiat Chrysler, like most of its rivals, withdrew its 2020 financial forecasts.

Fiat Chrysler restarted some production in Italy on May 4 after having halted almost all factories in the middle of March, in part because demand for new cars had evaporated across Europe as dealers closed and people were forced to stay home in the wake of national lockdowns. Many U.S. car factories closed in mid-March and are due to reopen on Monday.

Write to Eric Sylvers at eric.sylvers@wsj.com

(END) Dow Jones Newswires

May 18, 2020 02:47 ET (06:47 GMT)

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