Fiat is worried about higher-than-expected debt at year-end

Article by Christian Andrei, on July 26, 2011

Worries about the increasing debt of Fiat S.p.A. brought the company’s stock lower on Tuesday while it moved closer to complete a merger with Chrysler Group by outlining plans for a single management team.

Fiat Chief Executive Officer Sergio Marchionne, who also runs Chrysler, increased his targets for this year on the back of forecast-beating results for the second quarter that incorporated Chrysler for the first time since Fiat took a majority stake in it last month.

However, the new targets were below the estimates of some analysts. Worries about debts, which are higher than expected at year-end, pushed Fiat shares 4.5 percent lower at the market close to 7.17 euros.

The joint management team, which Marchionne intends to unveil in the next few days, is seen as a logical step to bring the two companies closer to a full-blown merger. However, analysts stated that Fiat has to explain first why its debt is growing, and how it might finance the purchase of the Chrysler share that it does not already own.

A London-based analyst who sought anonymity shared that everything about the operating line seems “good” except for the “big confusion” surrounding the net debt figure. The analyst said that everyone’s interested to find the reason for the 2 billion net outflow in the second half.

Fiat, which is the sixth largest vehicle manufacturer in Europe by market share, estimates net industrial liabilities of 5.0 to 5.5 billion euros at the end of 2011, versus the estimates of analyst for the whole year of 4.8 billion euros and a second-quarter debt of 3.4 billion euros.

When asked regarding the debt levels in a conference with analysts, Marchionne stated that the pro forma combined net debt remained at 6.3 billion euros in 2010, thus, the projected figure for this year would be an improvement.

Topics: fiat

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