Economy, Auto

€400m Deal With Peugeot Citroen

€400m Deal With Peugeot Citroen
€400m Deal With Peugeot Citroen

The contract between PSA Peugeot Citroen and Iran’s national car producer Iran Khodro has been signed at last and the finer details are beginning to leak out via reports from the respective companies and the local press.

The deal has been touted as the much vaunted auto contract in Iran's manufacturing industry, as both companies have agreed to be equal shareholders, which will bring in at least three new French models.

The €400 million ($436 million) deal was signed last Thursday during President Hassan Rouhani's visit to the French capital Paris.

Carlos Tavares, the chief executive of PSA, said at a press conference in Paris that the deal “turns the page on the period of international sanctions” and allows the group and Iran Khodro to start a “new chapter in their 30-year relationship", FT writes.

The expected date of the new production line is expected to begin in Q1 2017, at the very earliest, but the company has stated on previous occasions it will bring in a trial run of the 208, 301 and 2008 models in the coming months, most probably by summer this year from other manufacturing bases.

Iranian car buyers are not rhapsodizing over the news, as these models will roll on to Iranian streets in 2017—some four to five years after their overseas launch. Peugeot launched the 208 and 301 models overseas in 2012 and the 2008 model in 2013.

As part of the contract, Peugeot will produce 200,000 units at peak production figures, Reuters reported.

The company added that it will continue to produce the older 206 and 405 models in Iran by reorganizing the production line.

As part of the deal, the leadership of the new joint company will be picked by Peugeot, with Iran Khodro toeing the French decisions. The deal then reverses after two years with IKCO having their own pick of management, according to Eghtesad News.

  Auto Stocks and Exports

On the back of the announcement, the vehicle index at Tehran Stock Exchange recorded a 16% increase throughout last week, following the trends in the wider market indices. However, in the past 24 hours, IKCO's stocks have dropped slightly from their last week's gain.

Of the produced vehicles, 30% must be exported to regional markets, as per the agreement.

According to Reuters, the exported Peugeot branded vehicles can either be the older 206 and 405 models or the newer models like the 208, 301 and 2008. The report, however, does not specify which vehicles will be exported as part of the 50/50 contract.

As part of the wider deal to export the vehicles, an Omani sovereign wealth fund has signed a memorandum of understanding with IKCO to study a proposal for establishing a $200 million auto plant in Oman, a fund official said on Wednesday.

The MoU is one of the first signed between a major Iranian company and a Persian Gulf state since international sanctions against Iran were lifted earlier this month.

Oman Investment Fund agreed with IKCO to study the creation of a venture, Orchid International Auto, that would set up a plant at the southern Omani port of Duqm, Khalid al-Yahmadi, investment director for resources, manufacturing and logistics at the Omani fund, told Reuters.

The venture would be owned 60% by the fund, 20% by IKCO and 20% by an Omani investor, Issa al-Ryiami. It would start as an assembly facility and move gradually toward manufacturing automobiles, Yahmadi said, without elaborating on what kind of vehicles would be assembled.

"The total investment is expected to be $200 million for all the phases," he said, adding that a feasibility study would be completed in months and the partners hope to break ground before the end of this year.

PSA Peugeot Citroen supplied kit versions of its 206 and 405 models to IKCO for assembly before 2012, when the sanctions forced it to withdraw from Iran; Peugeot is now trying to renegotiate a new tie-up with IKCO.

Afshin Dastani, an executive who identified himself as a manager at Orchid International Auto, said construction of the plant at Duqm would take a year and production is expected to start by 2017.

  Citroen's Angle

Citroen, however, has opted to only bring their new top-end brand DS to Iran.

The first of the models that have made their way to Tehran are the DS 5 and DS 6 SUV, local automotive news website Asre Khodro reported last week.

The launch of the brand in Iran follows the October announcement of a deal between DS and Arian Group to operate and oversee the automotive brand’s first venture into the Middle East.

Peugeot pulled out of Iran in 2012, as western sanctions imposed over the Islamic Republic's nuclear program began to bite.

Citroen's standard range of vehicles on offer remains absent from the deal, including their small low-cost range C1.