Hybrid corporate market shows versatility as an alternative to European placement emerges.
The corporate hybrid sector shifted to retail markets with the Porsche 7.2% $1 billion perpetual non-call five (no coupon step-up), which was targeted at Asian investors. The transaction has several unusual aspects linked to structural features and marketing.
One of the key drivers of corporate hybrid trades has been the greater recognition that the rating agencies have given to issuers using deeply subordinated structures. Standard & Poor’s changed its methodology in late 2004 but it was Moody’s shift in February 2005 that opened the floodgates. Given that Porsche has no rating it is somewhat counterintuitive that it believed hybrid capital to be worthwhile.
Funding needs
As is often the case, corporate hybrids are driven by acquisition activity: Porsche, having taken a 22% stake in VW last year, had a funding need. In addition to a benchmark dual-tranche euro issue it also decided to bolster its balance sheet with capital that qualifies as equity under IFRS. Porsche has a strong, conservative reputation and is widely seen as effectively a single-A credit. In addition to the cost effectiveness of this form of capital it is also non-dilutive, which is particularly useful for family-owned companies in which the original owners wish to retain a stake.