Lufthansa falls as limit put on share holdings

SHARES in Deutsche Lufthansa fell by as much 5 per cent yesterday as the German government surprised international investors with a draft law imposing limits on foreign ownership in the airline.

Lufthansa stock slumped 1.25 deutschmarks to a low of DM20.60 after the Transport Ministry proposed measures to restrict foreign ownership of the airline to 50 per cent, in preparation for the flotation of the state's remaining 36 per cent stake this year.

The restrictions are standard for airlines and are required by international air laws which demand that flag carriers have domestic ownership.

However, Frankfurt dealers said investors had been scared by clauses requiring Lufthansa ordinary shares to be converted to stock with restricted transfer rights, and giving Lufthansa the right in certain cases to force foreign investors to sell their shares.

"The whole deal is making, people less sure of the company," said one equity trader.

However, airline analysts said the panic was overdone and the risk of compulsory share repurchases was not great.

"People are over-reacting to the risk of forced sales. In 10 years, British Airways has not got close to its limit (setting out similar foreign ownership restrictions)," Dresdner Kleinwort Benson analyst Mr Chris Tarry said.

He said British Airways currently had foreign ownership of around 23 per cent, comparable to the estimated 20 per cent international shareholding base in Lufthansa.

Lufthansa itself welcomed the draft law as an "appropriate measure" and said it paved the way for the sale of Bonn's remaining stake, worth some three billion marks, around the fourth quarter of this year.

A spokesman said that, assuming the law was passed in the coming months, Lufthansa shareholders would be called on to approve the possible implications for its shares at a meeting to be held in late-June.

The Transport Ministry said that from March, a computer-based trading system would be available for non-freely transferable shares that would allow them to be traded "as easily and reliably as ordinary shares".