French Government set to interfere further into Renault-Nissan alliance, with a large share purchase.

The French government increased its stake in Renault, boosting its influence as the automaker's biggest shareholder in a challenge to CEO Carlos Ghosn that risks destabilizing the Renault-Nissan alliance.

France will temporarily raise its holding to 19.7 percent from 15 percent and has already amassed most of the additional shares, the finance ministry said on Wednesday.

The government said the move was designed to secure double voting rights for longer-term investors -- itself included -- after a vote at Renault's April 30 shareholder meeting.

Legislation introduced under Socialist President Francois Hollande doubles the voting rights of longer-term shareholders in French companies unless they opt out of the so-called Florange law by a two-thirds majority.

By increasing its Renault holding, the government aims to block the automaker's "one-share, one-vote" proposal to opt out of the Florange law at the April 30 meeting. The move amounts to a public put-down to Ghosn, who has headed Renault and Nissan for the past decade.

George Galliers, an automotive analyst with Evercore ISI, said: "It seems that Renault is being used as a political football." The intervention clearly "goes against the company's wishes," he said.

The government's announcement appeared to come as a surprise to both Renault and Nissan, its partner in a 16-year-old alliance. "This was completely unexpected," a senior Renault source said. "Nissan was not given any warning."

The companies declined to comment.

French Economy Minister Emmanuel Macron said the Renault share purchase reflects government determination to use all available tools "to promote a progressive, long-term kind of capitalism that supports workers and helps companies grow."

The government said it would pare its Renault stake back to 15 percent after the shareholder meeting, outlining a system of put options that have been secured to guarantee a minimum price when the 14 million shares are resold.

Alliance future structure

The share purchase could also complicate any move to secure the future of the Renault-Nissan alliance by replacing its reciprocal shareholdings with a better defined holding structure or even a full merger before Ghosn's contract expires in 2018.

Renault has a 43.4 percent full-voting stake in Nissan and Nissan has a 15 percent non-voting stake in Renault. While Nissan is deprived of any votes on its 15 percent stake in Renault, the voting weight of the government's equivalent holding will surge under the new law.

"Nissan is already unhappy at not being able to exercise its votes in Renault," the Renault source said. "This demonstrates a very clear determination by the state to weigh on any future decisions on the future of Renault and the alliance."

Ghosn has previously ruled out a merger between Renault and Nissan but said the capital structure of the partnership could be reviewed before 2016.

Renault shares were little changed after the government's announcement before eventually rising 0.8 percent to 85.92 euros at 13:25 CET. Shares in Nissan closed 1.2 percent lower in Tokyo.

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