Banks to Take Fiat Stake

Fiat's creditor banks look set to overtake the Agnelli family as the carmaker's top shareholder group, but analysts expect no resulting shift in the company's turnaround strategy, nor its effective control

Banks to Take Fiat Stake

A 3 billion euro ($3.9 billion) convertible loan, offered in 2002 to help the industrial group survive a slump in sales, comes due in September. At that point, the eight lender banks will take on 26 or 27 percent of Fiat, which is still mired deep in losses.

The banks as a block would then hold more of the company than would the Agnelli-led Ifil holding company, whose stake would be diluted to 22 percent once the new shares are issued.

But analysts and sources dismiss the idea that the banks may act in a unified way to force management into strategy changes.

"As I understand it, the banks very much regard these as trading shares and will eventually try to unload them," one analyst said.

After a three-hour meeting on Tuesday, the chief executives of Fiat and leading Italian creditors Banca Intesa, Capitalia, Sanpaolo IMI and UniCredito moved to kill speculation about a renegotiation of the loan.

"The conversion of the mandatory convertible facility, due in September 2005, was confirmed," they said in a brief joint statement.

The banks will continue to support the group as it focuses on a three-year turnaround plan, the statement also said.

The statement showed that the banks, which stand to incur losses at conversion, would make no attempt to negotiate a lengthening of the loan, a financial source in Milan said.

"There doesn't seem to be any chance of the convertible loan now being changed," the source said. "Some of the banks may decide to sell their shares; some of them may decide to keep them. But they won't get together to run the company. They will do their own thing."

The banks are on the wrong end of the deal, because under the terms of the loan, the valuation of the Fiat shares they will get will be double their current market worth, showing how far the carmaker's stock has fallen since 2002.

The stock last week hit an all-time low of 4.39 euros. It has recovered since then and was trading at 5.11 euros at 1240 on Wednesday, down 0.9 percent on the day. Creditor banks have steadily written down the value of the loan, softening the immediate impact of the conversion.

Analysts at Exane BNP Paribas said a deal with the banks would allow Fiat Chief Executive Sergio Marchionne to press on with attempts to make the century-old company profitable again.

Marchionne earlier this year resolved another key issue for Fiat, winning a $2 billion settlement from General Motors Corp to end their fractious alliance.

But with GM and other sector giants struggling to sell cars in the face of slow demand and fierce competition, the recovery road for Fiat still looks like a steep climb.

"Fiat remains a risky story as the turnaround of the auto business is not yet achieved and is taking place in quite a difficult environment," BNP Paribas said in its note.

As well as the big four Italian banks, the banks which made the 2002 loan to Fiat were Banca Monte dei Paschi di Siena , Banca Nazionale del Lavoro, BNP Paribas and ABN AMRO.

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