Porsche seeks government assistance

[Phokaioglaukos]

Porsche seeks government assistance
by Andrew Bulkeley In Berlin
Updated 11:58 AM EDT, Jun-03-2009


Porsche Automobil Holding SE will turn to the German government to fill a €1.75 billion ($2.49 billion) hole in its finances as it continues to lug around €9 billion in debt largely amassed by buying a stake in on-again, off-again merger partner Volkswagen AG.

Porsche, of Stuttgart, has asked the state-owned Kreditanstalt für Wiederaufbau reconstruction bank for a €1.75 billion loan, a spokesman told Reuters Wednesday.

After securing €10 billion from a banking consortium in March, Porsche recently began asking lenders for an additional €2.5 billion to finance day-to-day operations. The sports car company reportedly reeled in €750 million from Bank of Tokyo-Mitsubishi UFJ Ltd. last month and, earlier this year, took a €700 million loan from VW that must be repaid this summer.

Porsche piled up the debt while buying about 51% of VW. It had hoped to bump the stake to 75% this year, which would have given it access to the rival's €11 billion in cash. But the mounting liabilities sapped its financial muscle and sparked a family debate among the Porsche heirs who control both companies.

The battle came to a head last month when VW and Porsche agreed in principle to merge but had difficulty hammering out details. VW, based in the central German city of Wolfsburg, eventually walked away from the talks, saying Porsche was dishonest about its financial situation.

VW and analysts worry about an estimated 20% stake in VW that banks friendly to Porsche bought as part of an options agreement. Porsche had planned to use the options to increase its VW holding but now won't say what exposure it has to the shares.

It's unclear whether Porsche could still be forced to buy the stock at an inflated price, write off the entire cost of the options or weather a steep decline in VW stock when banks unwind their positions.

VW's works council late last month passed a resolution demanding Porsche come clean, but the maker of the 911 and Cayenne said it has nothing to hide.

"Porsche … has an equity ratio of 45% and — in the face of the actual economic crisis — still achieves double-digit operating margins even if, due to the ongoing tensions in the capital markets as well as in the credit markets, the closing of a credit line of €12.5 billion — of which more than €10 billion is already secured — is delayed," the company said on Monday.

The options agreements expire this month, leaving Porsche little time to cobble together the cash needed to appease the banks, according to a recent Financial Times Deutschland report.

Since Lower Saxony state also holds 20% of VW, few shares are available for trading, making VW a popular target of speculators. The shares leapt 11.6% on Tuesday after Porsche reaffirmed its commitment to the VW merger.

Analysts said investors that had bet on the share price falling were forced to reshuffle their positions since a merger would indicate that the options positions won't immediately be sold off.

VW shares traded €2 higher in Wednesday Frankfurt trade at €255.20, while Porsche's preferred shares gained €0.08 to €46.18.