(Adds analysis, background, recent stock price trend)
By Christian Plumb
MILAN, July 27 (Reuters) - Automaker Fiat said late Friday that it had reached final agreement on a 3.0 billion euro mandatory convertible loan with a group of mostly Italian banks, clearing the way for a cash infusion for the struggling group.
The loan package will give the heavily indebted group some breathing room as it seeks to raise cash by selling assets and turn around its loss making car unit. But it also ups pressure on Fiat's management, which would have to surrender a big chunk of the company to the banks if it cannot repay the loan.
Fiat said it had pledged to reduce its net debt to three billion euros from 6.6 billion at the end of Q1, as well as slicing its gross financial debt to 23.6 billion euros from an estimated 35 billion.
Those targets must be met by the time the automaker's 2002 results are approved, Fiat said in a statement.
The automaker did not say what would happen if those targets were missed, but sources have told Reuters that Fiat would be obliged to sell some of its prize assets, starting with insurer Toro, worth an estimated 4.0 billion euros.
The three-year loan will be extended by a group of banks led by Capitalia , IntesaBci , Sanpaolo IMI and UniCredito and also including Banca Nazionale del Lavoro (BNL) , Monte dei Paschi di Siena , ABN Amro and BNP Paribas .
If Fiat opts not to repay the loan in cash, the banks will receive Fiat shares at a price equal to the average of 15.5 euros and the average price of the shares in the three months before the repayment date, the automaker said.
TURNAROUND SIGNS AWAITED
The loan is the latest helping hand the country's top banks have given to the industrial group, a symbol of Italy's post-war economic might that has long wielded strong political influence, in part because it is one of the country's biggest employers.
Sanpaolo, Intesa and Capitalia are also close to an agreement to buy a 14 percent stake in the country's largest private utility from Fiat, a financial source told Reuters earlier this month, a deal that will allow the automaker to raise another 576 million euros.
The loan agreement comes on the eve of Fiat's second-quarter financial results, due on Monday. The figures could give an indication of how well a rejigged management team is succeeding in turning the automaker around.
So far, investors seem unimpressed. Fiat shares fell 11 percent last week alone, the worst in the DJ Stoxx European automakers' index , capping a year in which they have underperformed the index by more than 30 percent.
Next week could also bring developments in an ambitious asset sale plan by Fiat that has so far borne little fruit. The automaker could agree to sell its Teksid castings unit to the U.S. based Questar fund as soon as Monday, Il Sole 24 Ore newspaper reported on Saturday.
In addition Fiat could be closer to a long-awaited deal to sell its Fidis consumer finance unit. General Motors , which owns 20 percent of Fiat Auto, could make a preliminary offer on Tuesday for one of the four business units of Fidis -- European retail, Brazilian retail, supplier financing and leasing, Il Sole reported.
A Fiat spokesman declined comment.
If GM or another bidder does not emerge for Fidis, Fiat's bank creditors have agreed to buy 51 percent of the finance unit, whose sale would allow the automaker to chop eight billion euros of its gross debt pile.