Continental to Increase Share Capital by 1 Billion Euros

Continental AG executives are reportedly planning to increase the company’s share capital by around 1 billion euros. Alan Hippe, Conti CFO and head of the group’s tyre and non-tyre products division told Reuters that the move was designed to secure the company’s financial position: “In view of the difficulty to predict how things will develop over the course of this year, it’s completely logical to think about strengthening your equity capital…”

Hartmut Meine, a member of Continental’s supervisory board told the news agency that the automotive supplier is already in preliminary talks with potential subscribers, which could include “industrial companies, family-held groups or financial investors.” Reuters reported that Continental shares fell up to a fifth following news of the capital increase plan. At the time of going to press, Continental’s share price was around 20.90 euros. The fact that the current share price is so low may mean that Continental will use the maximum third of its existing equity to raise the funds, Reuters reported.

This could also be viewed as a defensive move as it would mean Schaeffler would have to outlay more money to keep its 49.9 percent stake. Reuters’ Christiaan Hetzner suggested: “coming up with fresh funds could be difficult for Schaeffler since it borrowed heavily to finance its takeover bid and may get no dividends on its investment this year.”

The only good news about the current turbulent financial climate is that the cost of borrowing is cheaper than it has been for some time. “…We will have no substantially higher financing costs due to the overall decline in interest rates this year,” Hippe told Reuters, adding: “The banks view the Rubber Group’s business very positively…so they tell us that we have to get a good price for it if we want to sell it.”

Hippe also mentioned that the Continental will look into the possibility of applying for state aid through the German government’s rescue package for automotive and related manufacturers: “If there is state aid for suppliers and the Schaeffler Group stood to benefit from it, then we would expect that we…would also have the chance to participate in it.”