PSA

France's Prime Minister has said there are no current plans to take a stake in PSA Peugeot Citroen despite comments from a cabinet colleague that suggested state aid could be used to help the struggling carmaker.

"We have a tool, the FSI, which can if necessary take a stake," Jean-Marc Ayrault told reporters in Grenoble Friday, referring to the country's sovereign wealth fund. "But today this question is not being looked at ... it is not on the agenda because PSA in not asking for it."

A senior member of France's government has hinted at state aid for Peugeot after the struggling carmaker announced a €4bn write down amid plans to slash tens of thousands of French jobs.

Jerome Cahuzac, the Budget Minister within the administration of President Francois Hollande, said the State could considering taking a stake in Peugeot if its financial troubles were to threaten jobs. Peugeot said Friday in a statement that it's writing down the value of its automotive division assets by around €3.9bn (£3.3bn/$5.2bn) and taking a further €243m hit on bad business contracts.

"Let's be clear: this company cannot (and) must not disappear," he told RMC radio. "We'll have to do what we have to do to save this company." He later told BRM Television that "We must do what it takes for this company to survive."

Shares in the group fluctuated wildly on the Euronext exchange in Paris, rising nearly 4 percent on the initial comments from Cahuzac but falling sharply when Finance Minister Pierre Moscovici told reporters a stake purchase wasn't in the government's immediate plans. The shares were 0.7 percent higher at €5.91 as the market drew to a close on Friday. Peugeot has lost more than half of its value over the past year and has a market capitalisation of around €2.2bn.

"Although the writedown is a clear negative, we believe it reflects the group's worsened operating and financial position and do not expect it to (impact corporate bond valuations)", said RBS analyst Rodolphe Ranouil in a client note published Friday. "The comments by the French minister of budget, in our view, imply the likelihood of significant government support should the situation at Peugeot get out of hand and should reassure bondholders. We caution that the road could be long and bumpy however before bondholders feel the tangible effects of that voiced intention of support."

Europe's second biggest carmaker has been hammered by plunging European car sales and poor financial performance and plans to shed as many as 11,200 jobs - 17 percent of its French workforce - over the next two years. Total deliveries fell 17 percent to just under 3 million last year amid one of the worst years for the European auto industry in at least two decades.

Christian Lafaye, leader of the French union FO who is firing the job cuts, says the group is losing €7m each day.

Peugeot was downgraded deeper into junk status last month my Moody's Investors Service, which cited the "material deterioration in the already weak capacity utilisation of the company's European plants in H1 2012, which has resulted in a high cash burn rate of €200m per month since mid-2011 and a recurring operating loss at the automotive division of €662m."

"The downgrade and continuing review also take into account the fact that PSA is unlikely to return to break-even operating cash flow before late 2014, even if it is successful in implementing the announced reorganisation of its French production base along with additional cost-saving measures," said Moody's Senior analyst Falk Frey.