Volkswagen Group has sold 2.5 billion euros ($3.2 billion) in convertible bonds in order to boost liquidity after the company recently added Porsche and Ducati to its brand portfolio.
Volkswagen's war chest swelled to more than 21 billion euros in September 2011, only to then shrivel to just 9.1 billion over the following 12 months. Acquiring the remaining 50.1 percent of Porsche sports cars in August cost it nearly 7 billion euros in equity and debt, while buying the shares of Ducati in July required nearly 750 million.
The three-year notes will pay an annual coupon of 5.5 percent, the automaker said in a statement today. The minimum conversion price has been set at 154.50 euros and the maximum at 185.40 euros, VW said.
Analysts said the money may be used to complete the takeover of German truckmaker MAN SE, which VW already controls. "The bond sale was a bit of a surprise as VW's net liquidity was quite good at the end of the third quarter," said Michael Punzet, an analyst at DZ Bank in Frankfurt. "It seems that VW wants to proceed with the takeover of MAN SE. The acquisition of the shares of the truckmaker VW does not already own will cost about 3.3 billion euros."
Along with MAN, VW could also use the money to purchase the shares in Scania AB that it does not own or to take a stake in Navistar International Corp. in the United States, Bernstein Research analyst Max Warburton said. The money could also be used to buy Alfa Romeo or Ferrari from Fiat, he added.
"VW raised money in a similar fashion in 2010 and used this money to pay for the installment of Porsche," Warburton said in a note to investors today, adding, "Does VW really need this cash? We can't see it to be honest." "For a company generating over 2 billion euros if free cash flow a quarter, VW's problem is arguably what to do with its current liquidity, rather than having any need for capital."
Volkswagen's current voting rights are 75.03 percent in MAN and 70.94 in Sweden-based Scania. VW has said it may pursue a domination agreement for German-based MAN to gain greater control as VW seeks a deeper integration with Scania.
"We consider all our options to push forward the integration of our truckmakers," Marco Dalan, a VW spokesman, said today when asked about the analysts' comments.
VW has largely shrugged off a slump in the European car market, which is poised to suffer its biggest annual decline in 19 years in 2012, by relying on growth in the United States and China and expanding the Audi luxury brand.
VW reiterated two weeks ago a target to "match" 2011's operating income of 11.3 billion euros this year, even after profit slipped 1.6 percent in the first nine months of 2012.
According to VW, the bonds will automatically convert if the company's ratings drop below Baa3 and BBB- into junk, or speculative grade, according to the offer document. S&P rated the bonds at BBB, citing the deal's "high" equity content. Bank of America Corp., Credit Suisse Group AG and Deutsche Bank AG managed the sale, according to the document.
"With a view to our future global growth and the systematic implementation of our Strategy 2018, we want to make our position even more robust and flexible, and the planned convertible notes will further strengthen our liquidity and capital base," VW finance chief Hans Dieter Poetsch said in an e-mailed statement.
During a conference call late last month, Poetsch said the company was looking to maintain a cash reserve of about 10 billion euros.
Bloomberg and Reuters contributed to this report