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Porsche Fixes €10 Billion Loan; Investors Ponder VW Move

Extra Funds Raises Possibility Of 75 Per Cent Bid.
Consensus Suggest Porsche Will Stay At 51 Per Cent.

Investors breathed a sigh of relief when luxury sports car maker Porsche finally negotiated the terms of a massive, €10 billion loan, but aren’t convinced it will use the money to raise its stake in Volkswagen to 75 per cent.

Porsche now owns almost 51 per cent of VW, and has said it could raise this to 75 per cent this year.

Some investors had worried that Porsche’s finances were coming under pressure, but the arrangement of the loan was a signal that all was well.

Morgan Stanley analyst Adam Jonas points out Porsche’s current problems.

“We expect Porsche sales to fall more than those of any other automaker in our coverage in 2009,” Jonas said

“We anticipate a 37 per cent drop in unit sales which is more than twice the pace of decline we forecast for the auto companies, on average,” he said.

Jonas believes Porsche’s move to control VW is a good one.

UniCredit reckoned that the clinching of the loan was a positive sign.

“It could be a signal (combined with the first half results) that Porsche’s financial situation is not that stressed than many people think and the net debt figure is lower than feared. If our assumption is right that the new facility is enough to increase the stake to 75 per cent, Porsche has paid less than expected for the current VW stake,” UniCredit said in a report.

Large uncertainties
Not so, said Deutsche Bank, commenting on the Porsche books.

“Porsche’s financial situation is still not clear, with large uncertainties existing around Porsche’s net debt position,” Deutsche Bank said.

Commerzbank didn’t think Porsche would raise its stake to 75 per cent in VW.

If Porsche raised its stake to 75 per cent, under German law this would give it so-called “domination” over management and cash flows – in theory, access to the full profits of VW. But because of the VW law, Lower Saxony’s 20 per cent stake gives it veto rights, which would stop Porsche achieving domination until it breached 80 per cent.

Commerzbank said for Porsche to buy enough shares to reach 75 per cent, it would have to raise its net debt to some €13.5 billion.

“That’s way too much leverage, in our view. For that reason we expect Porsche to remain with a 50 per cent stake in VW,” Commerzbank analyst Daniel Schwarz said.

Transparency at last
There is another important ramification from Porsche’s credit arrangement – it will have to submit itself to a credit rating.

“This time Porsche will need a credit rating. While it won’t suddenly make Porsche a leader in corporate governance, it will at least partly improve transparency,” Schwarz said.

Neil Winton – March 31, 2009

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