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Business

Shares of auto group PSA plunge on capital increase rumors

Shares of French carmaker PSA Peugeot Citroen have tumbled after media reports of an alleged future investment by both a Chinese firm and the French state. The auto group is in the middle of a huge restructuring scheme.

French auto group PSA's shares dropped sharply in early Monday trading at the Paris stock exchange, falling by over 9 percent. The dive came in response to media reports of an alleged capital increase.

While PSA itself denied any direct capital increase plans, it confirmed it was in negotiations with different partners, but insisted none of the talks had "got to a mature stage at this point."

Media reports suggested that Chinese company Dongfeng and the French state could each subscribe to 1.5 billion euros' ($2.03 billion) worth of shares in PSA. Analysts said such an increase in the number of shares on issue would no doubt dilute the position of current shareholders which caused Monday's freefall.

Restructuring effort

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Cooperation between Opel and Peugeot?

The suggested arrangement would make less likely the chances of a tie-up with Opel, the European arm of GM.

PSA had already linked with General Motors in an attempt to develop a new business strategy and help the ailing group return to profitability. The French carmaker had already in effect been rescued by means of massive state support for its credit arm.

A recent report commissioned by the government had found PSA was in deep trouble because of decades of strategic mistakes as it had failed to make the most of globalization.

hg/kms (AFP, Reuters)

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