Fiat mulls selling about EUR1.5 billion ($2.05 billion) in mandatory convertible bonds to reduce debt after its merger with Chrysler Group, two sources privy with the matter told Bloomberg. Fiat is holding talks with banks about issuing a bond that would convert into shares of Fiat Chrysler Automobiles, the resulting company of the merger.
The talks are still at a preliminary phase, with Fiat targeting to decide on whether to proceed in the first half of 2014, the people said. Fiat is also reviewing other options to bolster its balance sheet.
Fiat won't pay a dividend in order to maintain liquidity following a deal to fully acquire Chrysler at $4.35 billion. It is now deciding how to boost financing without having to resort to a capital increase, chief executive Sergio Marchionne said in January. Fiat’s options include issuing mandatory convertible bonds and selling assets, he said.
"The most likely option is a mandatory convertible; that has the advantage of being issued at a premium to the share price," Massimo Vecchio, an analyst with Mediobanca, wrote in a note to clients.
"However, the group has several funding options," including selling a holding in Ferrari or Maserati, he said. Fiat’s shares have grown 84 percent in 2013, valuing the Italian carmaker at EUR9.48 billion.
Marchionne is aiming to transform the carmakers into a global manufacturer large enough to rival General Motors Co. and Volkswagen in worldwide sales. [source: Bloomberg]