Dongfeng to hold PSA shares as coronavirus hits stock values

14 April 2020

Chinese carmaker Dongfeng is likely to hold onto its stake in PSA Group until such time as share prices rally following the coronavirus (COVID-19) outbreak.

The company agreed to sell part of its 12.2% stake in the French carmaker when it announced a merger with Italian manufacturer Fiat Chrysler (FCA). By doing this, it hoped to smooth the amalgamation of the two businesses while still holding a small shareholding.

Dongfeng agreed to part with 30.7 million shares that were worth around €680 million, leaving it with a 4.5% stake in PSA Group. However, since the announcement of the PSA-FCA deal in October last year, the global financial market has been hit by the effect of COVID-19, with prices dropping as businesses fall on hard times.

When the share sale was agreed, stock in PSA Group was trading around €22. However, the price at present is around €12.50, meaning a sale of 30.7 million shares would net Dongfeng just €384 million.

The French carmaker’s share price average had been dropping since mid-February, although in recent days it has grown, from a low of just €9.50 per share.

On an earnings call with investors, Dongfeng suggested that this sale would come under review. ′There are possibilities that the stake sale plan will change. We are evaluating the issue,’ an official said during the call.

Changing attitudes

Meanwhile, Renault is to stop selling passenger cars in China, transferring its shares in its joint venture (JV) with Dongfeng back to the Chinese carmaker.

The move will see Dongfeng stop its Renault brand activities, while the French carmaker will concentrate on light commercial models and electric vehicles (EVs) in the market. As China starts to recover from the effects of the coronavirus, the move highlights that European companies are taking steps to ensure their resources and budgets are not stretched as the continent continues to battle the pandemic.

While factories in Asia are slowly starting to reopen, albeit with numerous restrictions in place to stop the spread of COVID-19, most of those in Europe are still closed as countries enforce lockdowns. Those that are reopening are doing so either to create equipment for healthcare requirements or to supply Chinese factories.

Therefore, the industry in China is in a stronger position than in Europe at present, meaning Renault may not be the only European carmaker to consider its activities in the country in order to refocus its efforts and save money.

New opportunities

Renault, Nissan and Dongfeng will continue to cooperate on supplying engines and components for Dongfeng and will license diesel engines to the Chinese firm.

′We are opening a new chapter in China. We will concentrate on electric vehicles and light commercial vehicles, the two main drivers for future clean mobility and more efficiently leverage our relationship with Nissan,’ said Francois Provost, chairman of the China region at Groupe Renault.

Pulling out of its JV with Dongfeng will allow Renault to move resources to its other partnerships in China, especially in the EV market, where it projects a large amount of growth.

′With 860,000 electric vehicles sold in China in 2019, China is by far the largest EV market in the world,’ the carmaker said. ′EV sales are expected to reach 25% of the Chinese market by 2030.’