MILAN – Fiat shares sank more than 11 per cent Wednesday as investors expressed skepticism over a new business plan to launch Fiat Chrysler Automobiles as a leading global player.
Analysts said that the ambitious plan to invest 48 billion euros ($67 billion) to boost volumes to 7 million by 2018 from 4.4 million last year failed to adequately address the financing requirements. The plan does not include a capital increase, and the company left its options open, including the possibility of a convertible bond.
CEO Sergio Marchionne emphasized that cash-generating Ferrari was not for sale — a topic of frequent market speculation — and that an initial public offering was not imminent.
Bernstein analyst Max Warburton said Fiat’s first-quarter results, which showed losses widening, “provided a sobering reminder of the fragile foundations on which FCA must build its ambitious plans.”
Expressing reservations over business plan, Warburton noted that Fiat “is weighed down with huge debt, burdened by financing costs and is only thinly profitable.”
Meanwhile, Mediobanca analyst Massimo Vecchio called the plan “challenging but achievable” and said he expected clarification on the capital structure after the new company is listed in New York and Milan, expected by Oct. 1.
Vecchio said Marchionne made clear a capital increase “would be prudent” but any decision to pursue one through a corporate bond issue was complicated by the company’s stock performance, which the CEO said was undervalued.
Fiat shares, which had gained more than 40 per cent since Fiat announced the deal Jan. 1 to take full control of Chrysler, closed Wednesday at 7.48 euros.