February 27, 2014 at 8:26 am

Fiat reportedly considering selling $2B in mandatory convertible bonds to cut debt

Fiat SpA is considering selling around 1.5 billion euros ($2.05 billion) in mandatory convertible bonds to cut debt following its merger with Chrysler Group LLC, two people familiar with the matter said.

The Italian carmaker, which bought the remaining Chrysler stake last month, is talking to banks about issuing a bond that would convert into shares of Fiat Chrysler Automobiles NV, the company being formed by the combination, said the people, who asked not to be identified discussing private matters.

The discussions are at a preliminary stage, with Fiat aiming to make a decision on whether to proceed in the first half, the people said. The carmaker is also looking at other options to strengthen its balance sheet, they said. Fiat declined to comment on the manufacturer’s financing.

Fiat, which won’t pay a dividend to maintain liquidity after the $4.35 billion deal to buy the rest of Chrysler, is weighing how to boost funding without resorting to a capital increase, Chief Executive Officer Sergio Marchionne said last month. The group has several alternative, including 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 in Milan, wrote in a note to clients yesterday. “However, the group has several funding options,” including selling a holding in Ferrari or Maserati, he said.

Marchionne, who plans to list the combined company in New York later this year, is seeking to transform the two regional players into a manufacturer with the scale to challenge the likes of General Motors Co. and Volkswagen AG in global sales.

Fiat forecasts net industrial debt will rise to as much as 10.3 billion euros at the end of 2014 from 6.6 billion euros in 2013. The carmaker two weeks ago said that its “capital resources are more than adequate to meet the project funding requirements” for this year.