Porsche to move on €5bn rights issue

Porsche SE is driving ahead with a €5 billion rights issue in an attempt to keep hopes of a merger with carmaker Volkswagen alive by paying off a chunk of its heavy debts.

Porsche is offering holders of ordinary and preference shares the chance to buy three shares for every four they own at €38 per share. At Friday's closing share price of €56.22, this represents a discount of 32.4 per cent.

The German company is having to turn to shareholders after it ran up crippling debts of more than €10 billion in a botched attempt to buy VW. It raised its interest to just over 50 per cent of VW's voting stock in early 2009, but nearly bankrupted itself in the process.

Porsche was eventually forced to seek a merger with its larger rival, but this deal has since been put in doubt by both financial and legal hurdles.

Half of the amount raised will come from the Porsche and Piech clans, along with shareholder Qatar, which control Porsche SE. The families have committed to buying the rights on Porsche's ordinary shares.

The cash will be used to redeem bank loans and pay down debt, a core requirement for VW shareholders before they agree to folding Porsche into their own cash-rich company. Porsche's net debt totalled €6.34 billion at the end of 2010.

"This is the announced step in debt relief," said Michael Muders, fund manager at Union Investment, which owns 348,000 Porsche shares according to Thomson Reuters data. "But this does not say anything about the likelihood of the merger with VW, which hinges mainly on legal issues," he added, referring to ongoing court disputes with U.S. hedge funds suing for billions in damages.

A merger between VW and Porsche also needs to be given the green light by VW's preferred shareholders with an 80 per cent approval. This is considered unlikely until Porsche has cleaned up its balance sheet entirely and resolved issues over tax liabilities with the German authorities.

Although the mark-down was less that that offered on some of the big capital raisings during the financial crisis of 2009 when discounts of 40 per cent were common, analysts said the discount reflected these other risks.

"(It) was more than the €42 per share I was anticipating, but in view of the potential risks this should help facilitate the sale," Metzler Bank analyst Juergen Pieper said.

Goldman Sachs calculated the theoretical ex-rights price (TERP) at €48.14 per share.

The rights issue is just one of the measures taken to cut Porsche's debts. The Porsche and Piech clans sold off their independent dealership group for €3.3 billion earlier this month and half of the Porsche sports car business for another €3.9 billion, both to VW.

Reuters