Porsche On The Financial Brink

Porsche On The Financial Brink – The German luxury and sport car maker Porsche is struggling to raise €1.75bn to cover debts and unwind derivative positions stemming from its botched attempt to take over vastly-bigger Volkswagen.

Porsche’s travails are largely due to financial acrobatics, not falling sales.

Porsches’ shares in VW surged to 51 percent earlier this year after a series of derivatives deals that tripled Porsche’s debt to €9bn, after it started buying them in 2005. The automaker poured up to $23 billion most of which was leveraged, into buying VW shares.

The sports-car manufacturer planned to resolve its financial difficulties by integrating with VW, but instead finds itself on the brink of bankruptcy as its efforts to merge with VW failed.

According to industry insiders, Porsche’s worse-than-expected debt has forced the sports-car maker to halt merger talks with VW, making it uncertain as to whether the two automakers will resume negotiations. The takeover bid went badly wrong, forcing Porsche chief Ferdinand Piech to press instead for a merger of the two car makers on increasingly less favourable terms.

Porsche’s shares fell 3.1pc in Frankfurt on Monday after it emerged that the company had obtained a €700bn loan from Volkswagen as long ago as March. A Porsche spokesman said the group is negotiating bridging finance with a variety of banks, including the state lender KfW. It is understood that Porsche is also in talks with the Bank of Tokyo for a €750m loan, and is seeking help from the regional government of Baden-Wurttemberg.