By royal Fiat

23 Jun 2003 By Rob Cox Follow @rob1cox

It is hard to see how this would be in their interests especially if it allowed the banks to get off the hook. Fiat currently has the option to force its banks to take E3bn of equity at an inflated price. It should try to preserve this option.

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Fiat is locked in negotiations with its banks about a possible E2bn fully underwritten capital increase that may accompany the company's turnaround plan later this week, according to people familiar with the discussions.

In return for underwriting the rights offering, at as low as E5 a share, the banks are expected to push Fiat to renegotiate the terms of a E3bn debttoequity agreement reached a year ago. If that convertible arrangement were exercised today, the banks would be forced to convert debt to equity at a price well above Fiat's share price.

The turnaround plan by Giuseppe Morchio is expected to call for job cuts, including more than 100 at the executive level, a reorganisation of its dealer network and the launch of a handful of new car models. He is expected to unveil the plan on Thursday.

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