Porsche loan denied
2009-06-22 08:41
Porsche's financial position is growing desperate as the German state bank KfW has postured it would deny the carmaker a critical €1.75bn debt servicing loan.
One of the world's last remaining independent sporstcar manufacturers, Porsche, despite enjoying strong sales and running with production efficiencies envied by all other manufacturers, has gambled and stands to lose severely in an aborted take over bid for VW.
Porsche's debt burden is a consequence of the company's audacious attempt (though some would speculate the Porsche family's personal ambition) to takeover the whole VW Group.
This aborted takeover of VW has left Porsche with 51% of the voting stake in Europe’s largest car maker by sales, yet saddled it up with over €9bn in debt too, which means pretty chunky interest payments.
Those interest payments are so chunky, in fact, current sales levels (in a heavily depressed market) are only enough to service the cost of debt, not pay it off.
No loan - for now
The situation has become so sensitive, Porsche boss Wendelin Wiedeking (Europe's best paid CEO coincidentally) has written to union boss Bertold Huber and VW Group chairman Ferdinand Piech (a Porsche family scion), warning them not to discuss Porsche’s debt problems in public.
Wiedeking is said to be fearful that Porsche could be refused the loan - well if he was scared before the weekend, we wonder if the hypertension has been scaled up to terror levels today, as financing options were evaporating.
KfW bank has opposed the massive loan request from Porsche and its chances of obtaining any public aid were slim, German Economy Minister Karl-Theodor zu Guttenberg said yesterday.
Porsche supervisory board chair Wolfgang Porsche and CEO Wendelin Wiedeking. Has the former's family ambition and latter's belief in cash-on-tap capital markets set Porsche on a roadmap to disaster?
Oil cash to the rescue?
The company will probably have no other option than to sacrifice some independence - ironic considering this has always been a Porsche family control freak characteristic - by selling off a stake to the Qatar Investment Authority (QIA) to ease its debt problems.
Numbers suggest Porsche would have to sell a stake of 25% or more to the QIA, which would give the new shareholders a blocking vote.
If this sale comes to fruition (it simply has to in the wake of the KfW loan refusal), Porsche will probably merge with the wider VW Group. Such a state of affairs was nearly unthinkable at the start of 2009 when Porsche was penciling in a take-over of VW as a matter of course.
In the meantime, however, Porsche also runs the risk of VW stock prices collapsing, which could force Porsche to make high-value cash payouts to investors.
Over the last nine months sales retracted by 28% to 53 635 units, with entry level models like Boxster and Cayman particularly affected by weakening global demand.
Turnover though, was down by only 15% to 4.6bn, signaling 911 and Cayenne sales have remained relatively steady. This position should be shored up by the recently launched Panamera four-door luxury saloon range.
Porsche claims profit margins just missed double figure billing. Over the last decade, the company has returned profit margins between 13- and 20%, by far the highest in the car industry.
These class leading efficiencies and profit margins have made the company's perilous debt burden - solely as the result of an over ambitious acquisition drive - cruelly ironic.
The latest joke in German financial circles is that Porsche has now become a hedge fund with an automotive subsidiary - cruel, yet not too far removed from truth.
