Siemens Seeks Record $3 Billion From Sale of Warrant Bonds

Siemens AG (SIE), Europe’s largest engineering company, is raising $3 billion from the biggest biggest-ever offering of notes including warrants exchangeable for stock, a cheaper source of funding than conventional bonds.

The two-part sale includes securities due 2017 and 2019 that carry rights to as many as 21.9 million Siemens shares, based on yesterday’s closing share price, the Munich-based company said in a statement. Each portion is expected to be $1.5 billion in size, two people with knowledge of the sale said.

Bonds with warrants include a transferrable option to buy underlying stock at a set price and time, allowing companies to cut costs because buyers will accept lower coupons for the chance of profiting from higher share prices. Siemens’s bonds due 2017 will pay a coupon of 0.55 percent to 1.05 percent, which compares with 5.4 percent on average for the company’s outstanding fixed-rate debt, data compiled by Bloomberg show.

“Certainly there’s a slightly smaller coupon they have to pay with this, so slightly better funding costs,” said David Clott, a portfolio manager at Aviva Investors in Westborough, Massachusetts, which manages about $4 billion in convertible bonds. The warrants may be attractive once they’re detached from the bonds, he said.

The securities due 2019 will pay a coupon of 1.15 percent to 1.65 percent, Siemens said. The exercise price per share is expected to be within a range of 137.5 percent to 142.5 percent of the reference share price.

Stock Falls

Siemens, which is rated A1 at Moody’s Investors Service and an equivalent A+ at Standard & Poor’s, fell 0.48 euros, or 0.6 percent, to 75.52 euros in Frankfurt. The stock has risen about 2.1 percent this year, giving the company a market value of 69 billion euros ($92 billion).

The notes will “achieve attractive financing from a diversified investor base,” including convertible bond investors, spokesman Wolfram Trost said today.

Sales of equity-linked securities in Europe, the Middle East and Africa fell 51 percent last year to $10.9 billion after Europe’s sovereign debt crisis roiled debt and equity markets. Siemens’s transaction will be the biggest offering of bonds with warrants in dollars, euros or pounds since at least 1999, according to data compiled by Bloomberg.

“Our market’s been starving for issuance for over a year now, and that comes from the fact that rates are so low and equities have been down as well,” said Tom Wills, who manages $1.5 billion in equity-linked bonds at Morgan Stanley Investment Management in London. “If you want to play a recovery in European markets through Germany then it’s as good a name as you’re going to get for that purpose.”

The proceeds of the sale will be used for general corporate purposes, Siemens said in the statement. The final amount will be set according to investor demand, the company said.

To contact the reporters on this story: Ben Martin in London at bmartin38@bloomberg.net; Richard Weiss in Frankfurt at rweiss5@bloomberg.net

To contact the editors responsible for this story: Benedikt Kammel at bkammel@bloomberg.net; Paul Armstrong at parmstrong10@bloomberg.net

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