MILAN (Reuters) – Fiat Chrysler (FCHA.MI) is in talks with Intesa Sanpaolo (ISP.MI) more than 6.3 billion euros (6.8 billion US dollars) in loans supported by the Italian government to help carmakers overcome the coronavirus crisis, two sources close to the problem said on Friday.
FILE PHOTOS: New Fiat Panda and Fiat 500 lightweight hybrid cars are seen in the piazza Maggiore, in Bologna, Italy, February 4, 2020. REUTERS / Flavio Lo Scalzo / Photo File
Fiat Chrysler (FCA) has gradually resumed operations in Italy since late April. The crisis removed demand for new vehicles and encouraged producers to stop most production, burning cash.
The loan, which is part of emergency liquidity measures provided by the government for Italian business, must be approved by the Intesa Sanpaolo board, the source said.
If approved by the lender, the request will be reviewed by the Italian export credit agency SACE, where the country gives its guarantee, and then by the Ministry of Finance for the last green light, the source added.
The second source said Intesa Sanpaolo would act as the main lender and that the loan for the FCA would be issued by a collection of banks. The FCA and Intesa aim to immediately establish details and quickly send the agreement to SACE, the source added.
FCA, Intesa and SACE declined to comment.
News that the FCA was exploring a state-backed loan was first reported by the MF daily on Friday.
FCA, which has an official headquarters in the Netherlands, runs several factories in Italy and can qualify through its local units for a government scheme, which offers liquidity and bank loans worth more than 400 billion euros to companies affected by the pandemic.
Under the scheme, state guarantees include 80% loans for companies with annual revenues of 1.5 billion to 5 billion euros and 70% for companies with revenues above 5 billion euros.
One source said the FCA was entitled to a 70% guarantee but demanded 80%, taking advantage of clauses in the scheme that benefited companies with operations in industries that were deemed important.
Companies that use the Rome scheme for state guarantees on loans must refrain from approving dividend payments for a year.
FCA and Peugeot PSA owners (PEUP.PA), which had reached a merger agreement to create the world’s fourth-largest carmaker, earlier this week canceled planned ordinary dividends at 2019 results, each worth 1.1 billion euros, due to the COVID-19 pandemic.
However, as part of the tie-up agreement, the FCA will also pay a special dividend to its shareholders of 5.5 billion euros before the close of the merger, which is confirmed by the two groups as expected before the end of the first quarter of next year.
In the first quarter of this year, the FCA industry’s free cash flow was negative 5 billion euros. But the FCA said it had a liquidity of 18.6 billion euros as of March 31, including a 6.25 billion revolving credit facility that was fully withdrawn in April.
Last month, the FCA completed a syndicated credit facility of 3.5 billion euros with the bank.
Reporting by Giulio Piovaccari and Stefano Bernabei, additional reporting by Valentina Za, Cristina Carlevaro; edited by Mark Potter / Hugh Lawson and Grant McCool
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