OMV Said to Prefer Bond Over Share Sale for Turkey Bid

OMV AG prefers the sale of hybrid or convertible bonds over a share issue to fund its 1 billion-euro ($1.4 billion) purchase of Turkey’s biggest fuel retailer Petrol Ofisi AS, two people with knowledge of the matter said.

Central Europe’s largest oil company will decide on one of the options within the next two weeks, said one of the people, who like the other asked not to be identified because the talks are private. A bond sale is preferred because it will allow the Austrian government to keep its 31.5 percent holding without committing more cash, the people said.

OMV is expanding in emerging markets where demand is growing faster than in Europe. The company on Oct. 22 agreed to take over Petrol Ofisi by buying a 54 percent stake from Dogan Sirketler Grubu Holding AS for 1 billion euros, taking its holding to 96 percent. The company has said that it wants to fund the acquisition in a way that keeps its “strong investment grade” credit rating intact.

Moody’s Investors Services said on Oct. 26 that OMV’s A3 rating may be at risk if the purchase is funded entirely with debt. Fitch Ratings placed its A- rating on Watch Negative on Oct. 25 and said it may downgrade OMV one step if the acquisition is largely debt-funded.

The shares rose 1.2 percent to 27.33 euros at the 5.30 p.m. close of trading in Vienna, valuing OMV at 8.2 billion euros.

Capital Discipline

“OMV is committed to strict capital discipline and intends to fund this acquisition by accessing the most appropriate sources of long-term capital,” Michaela Huber, a spokeswoman for OMV in Vienna, said in an e-mailed statement today.

The option to sell new shares is limited by OMV’s shareholder structure, the people said. OMV is controlled by the Austrian government, which owns 31.5 percent, and International Petroleum Investment Co. of Abu Dhabi, which has 20 percent. The two have pooled their voting rights in a syndicate. A convertible or hybrid bond would allow the government, which is cutting spending to reduce its budget deficit, to maintain its stake without investing in a share issue, the people said.

OMV Chief Executive Wolfgang Ruttenstorfer said in a conference call on Oct. 25 that OMV was still determining whether to sell shares or hybrid or convertible bonds to finance the deal. The company has shareholder permission to sell as many as 77.9 million new shares, or 26 percent of the outstanding, or to issue bonds convertible into the same amount of shares.

Hybrids

Hybrid bonds are treated partly as equity because they typically have no set redemption date and are repaid after senior creditors. They allow companies to raise capital without hurting credit ratings and diluting the shares. Investors, who had shunned them during the credit crisis, began to snap them up again this year, when sales jumped to a five-year high of at least 5.2 billion euros in Europe.

Convertible bonds are also often subordinated to senior debt and can be redeemed with shares rather than cash under certain conditions. They potentially cause dilution for existing shareholders at a later date.

Petrol Ofisi had net income of 287 million Turkish Lira ($203 million) last year with its network of about 2,500 filling stations. OMV expects oil consumption in Turkey to rise by 14 percent by 2015, compared with a 2 percent decline in central Europe. OMV has been a shareholder in Petrol Ofisi since 2006, when it bought a 34 percent stake for $1.1 billion.

Last month’s acquisition announcement was the second time OMV tried to take over Petrol Ofisi. An initial attempt last year was ended because of a tax dispute between Dogan and the Turkish government. At the time OMV was said to have hired JPMorgan Chase & Co., Barclays Bank Plc and UniCredit SpA to manage an 800 million-euro share sale.

The company has said that it is also pursuing acquisitions to boost its oil production, without revealing what targets it is considering. Ruttenstorfer has also said OMV may buy a stake in Turkey’s planned $4.9 billion Ceyhan oil refinery project.

To contact the reporters on this story: Boris Groendahl in Vienna at bgroendahl@bloomberg.net; Zoe Schneeweiss in Vienna at zschneeweiss@bloomberg.net

To contact the editor responsible for this story: Angela Cullen at acullen8@bloomberg.net

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