Porsche’s financial options

Very interesting article on Rueters:

FRANKFURT (Reuters) – Porsche is advancing toward a deal with Qatar to give the Gulf state a shareholding in Volkswagen, a compromise that will clear the way for the carmakers to merge, according to people involved in the talks.

Porsche (PSHG_p.DE) racked up 9 billion euros ($12.7 billion) of net debt trying to swallow its much bigger rival Volkswagen (VOWG.DE) before the financial crisis turned the tables and threatened to unravel the deal.

The luxury carmaker’s borrowings have spoilt its bargaining position and are the biggest stumbling block to reaching a merger. Here are its options:


The carmaker has gone cap in hand to Berlin, asking for a 1.75 billion euro loan. But past comments from Chief Executive Wendelin Wiedeking that state aid and luxury do not mix have returned to haunt him.

Porsche said on Thursday that talks about a loan continue but all signals from the government point toward their request getting the thumbs-down.


Porsche, which already owns about half of VW’s voting shares, is hoarding options that gives it access through counterparties to buy another 20 percent. Sources close to the negotiations told Reuters that Porsche is now prepared to surrender these to Qatar.

“This is the most likely option,” said one source with direct knowledge of the matter.

It would allow Qatar to take a stake in Europe’s largest car company and its stable of brands, spanning exotic sports cars Bugatti and Lamborghini to the plain vanilla Volkswagen Golf hatchback. But it would likely also further diminish Porsche’s power in a merger.

While such a deal would create value, it would still leave some risk that Porsche could run into further financial problems that could force it to sell parts of its VW stake, said MM Warburg analyst Marc-Rene Tonn.


Long assumed to be the preferred option, the chances of Qatar purchasing a direct stake in Porsche are receding.

Sovereign wealth fund the Qatar Investment Authority could have taken a voting stake of about a quarter in Porsche, eroding the power of its owners, the Piech and Porsche families.

The planned capital increase to open its doors to Qatar had been expected to raise more than 4 billion euros.

“We believe that any capital increase or disposal of VW shares or options will be significantly positive for Porsche’s liquidity and debt leverage,” said UniCredit analyst Sven Kreitmair.

But such an arrangement would have left Qatar one step removed from the seat of power at Volkswagen’s headquarters in Wolfsburg. A direct VW stake gives it more say alongside Porsche and VW’s second-largest shareholder, the state of Lower Saxony.


Insisting that it was “not on the verge of insolvency,” Porsche admitted at the end of May that it had taken a 700 million euro loan from Volkswagen. It could come back for more.

Volkswagen had a net cash pile of almost 11 billion euros from its car business last March.

But its ordinary shareholders — Porsche and others own the carmaker’s preferred stock — are likely to raise their eyebrows should the group give more cash to struggling Porsche.

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