Battered Fiat wins support from banks-sources

TURIN, May 27 Reuters reported that struggling Italian carmaker Fiat has clinched an agreement with creditor banks for much-needed capital as it tries to tackle growing debts and rising losses, sources said on Monday.

The sources said they "would not deny" a deal had been reached, adding it would not include any undertaking by Fiat to speed up sale of its remaining 80 percent of car unit Fiat Auto.

Earlier news agency ANSA reported banks IntesaBci, Banca di Roma and Sanpaolo Imi(Milan:SPI.MI - News) -- in return for the capitalisation -- would get a stake in sports car unit Ferrari which Fiat plans to list on the stock market.

Fiat may sell its stake in Fiat Auto from 2004 to General Motors Corp. under an agreement signed two years ago when GM took an initial 20 percent.

Italian newspapers have said Fiat might have to carry out a quicker sale of Fiat Auto as it tries to stave off possible downgrades of its debt by ratings agencies.

A top executive at Sanpaolo, which has a two percent stake in its Turin neighbour, said the bank would stand by Fiat.

"Every real bank wants to be with its clients in growth as well as during difficulties," Enrico Salza, Sanpaolo's deputy chairman, told reporters. He declined to detail the agreement, saying only that the deal would be done "quickly and well."

But Fiat shares closed down six percent and the three banks also fell with Banca di Roma off nearly five percent.

Fiat shares have now underperformed the Dow Jones index of European auto stocks (Zurich:^SXAP - News) by 37 percent on concerns about its falling market share and by the risk of debt downgrades.

Downgrades could drive up Fiat's borrowing costs when it is weighed down by over 30 billion euros in debt overall.

"The precise situation is still unclear but the stock is falling on the prospect of a downgrade and the fact it has so far not carried out any of its divestments," said one analyst.

"So far Fiat has been burning money. Even if the banks or investors put in more money, if Fiat does not resolve its problems it will just mean more money that gets burnt," a trader said.

DEBTS ON THE TABLE

Earlier on Monday, a member of the Fiat-controlling Agnelli family said the group was renegotiating its debts with banks.

Umberto Agnelli said Fiat was trying to counter moves by ratings agencies which have said they might downgrade Fiat's debt on concerns about whether Fiat can quickly sell assets.

Fiat shares sank to nine-year lows recently on concerns the ratings could eventually slump to junk bond status.

Fiat is attempting to halve its net debt to three billion euros by the end of this year with much of the cash coming from promised asset disposals. But net debt rose 10 percent in the first three months of 2002 to nearly 6.6 billion euros.

The group's overall debt, including leasing and consumer credit activities, is seen at about five times that level.

In the first quarter, the group reported a net loss of 529 million euros, hurt largely by losses at Fiat Auto.

Newspapers have reported that IntesaBci, Sanpaolo IMI and Banca di Roma had urged Fiat to speed up the disposals.

The Financial Times said on Monday the banks wanted Fiat to sell insurance arm Toro -- something the Turin-based group has ruled out -- and aircraft engine parts-maker Fiat Avio.

However, many analysts say that might not be the best thing to do. "Toro and Avio are cash-generative and although you could create a short-term solution by selling them, in the long run it would not be wise," said one London-based equity analyst.

Fiat plans to sell 11 assets to raise up to 3.2 billion euros. It has also announced nearly 3,000 job cuts in Italy as well as its plan to list sports car unit Ferrari on the stock market to raise about 750 million euros.

Separately, Agnelli said his brother and Fiat's powerful honorary chairman, Gianni Agnelli, was doing "quite well" as he underwent treatment for a prostate condition.

A Fiat spokesman on Friday denied a new wave of speculation that Gianni Agnelli had died in the United States. The rumour briefly helped push up Fiat shares. Gianni is seen as the main opponent to any sellout of Fiat Auto to General Motors.