Moody's Reviews Fiat Rating

Following yesterday's announcement made by Fiat that it will split the group and create a new company for the industrial holdings it owns, rating agency Moody's Investors Service announced it has placed the Italian manufacturer under review, pending a possible downgrading of the company's rating. Fiat is currently rated Ba1.

From January 1, 2011, Fiat will comprise two companies, one which brings together its brands (Fiat, Lancia, Alfa Romeo, Ferrari and Maserati) and another one, Fiat Industrial, which will be made up of the Iveco commercial and truck division, CNH and Fiat's marine and industrial powertrain operations.

"Today's rating action was solely triggered by the approval of the demerger plan of Fiat's capital goods business and its possible impact on the remaining Fiat operations focusing on car business and related components businesses," Falk Frey, Moody's lead analyst for Fiat said according to MarketWatch.

As a direct result of the split, Fiat's total equity will be reduced by EUR 3,75 million. Fiat will keep $12.8 billion in cash, while the new industrial company will be left with only $3.8 billion, because it has less need for cash, Fiat's CEO Sergio Marchionne announced.

From now on, Fiat will rely even more on Chrysler. Yesterday, Marchionne announced he expects Chrysler to post profit for the second time this year when the financial results for the second quarter will be made public on August 9. Currently, Fiat owns 20 percent of the American carmaker, with an increase to 35 percent a real possibility in the near future.

Fiat posted its second quarter results, showing a EUR651 million increase in trading profit.