Infineon Technologies (IFNNY) has planned a rights issue of 337 million shares with a subscription price of €2.15 per share, which represents a discount of 42% on current market price. Existing shareholders will have the option to buy four new shares for every nine existing shares held by them, including holders of ADSs. The subscription will open within two weeks’ time.
The issue targets an amount of €725 million ($1.01 billion under currently prevailing exchange rates). Infineon intends to repay previously issued convertible bonds and exchangeable bonds carrying nominal values of €522 million and €48 million respectively.
Once this is achieved, the capital structure will change drastically and favorably alter its gearing. The firm’s liquidity position will also improve. The present issue is necessitated due to fast depleting cash resources as a result of financing its loss making subsidiary Qimonda as well as high level of debt at close to 50% of its equity.
The issue is being underwritten by Apollo Global Management LLC, a leading alternative asset manager and private equity investor. Apollo has agreed to provide a backstop for the rights offering if it is undersubscribed. Apollo has committed to acquire at the subscription price a maximum of 326 million new shares not subscribed for, subject to its shareholding not exceeding 30% minus one share of Infineon’s share capital after implementation of the rights issue.
Apollo intends to retain a minimum of 15% of Infineon’s post –issue share capital. It wants a role in nominating the chairman of the supervisory board and wants a permanent second seat on the board thereafter.
Infineon is one of the two market leaders in the automotive electronics market. It is currently operating near breakeven levels and is expected to show profits when the automobile industry, dominated by Daimler (DAI), Ford (F) and General Motors, swings favorably at the end of current economic slowdown.
We maintain our Hold rating on IFNNY.
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