Abu Dhabi-based sovereign-wealth fund Aabar Investments PJSC may decrease its stake in Daimler AG by issuing a bond that’s exchangeable into the manufacturer's shares. Aabar is the largest shareholder of Daimler AG.
According to the Abu Dhabi government investment unit, it raised 1.25 billion euros ($1.77 billion) in the transaction, which is 500 million euros higher than what was initially sought.
It can decide to settle the bonds in cash and to hold derivative contracts in order to participate in further gains in Daimler shares. The fund stated that these derivative contracts could lead to "significant" trading in Daimler shares as its counterparty covers its position.
In addition, the fund stated that the issue takes advantage of "attractive" conditions in the market. Aabar further disclosed that the five-year notes will pay a coupon of 4 percent. They can also be handed over for stock in the automaker when the shares rise 30 percent.
In addition, the fund revealed that the proceeds will be utilized for "general corporate purposes." Moreover, Aabar mentioned that Morgan Stanley, Bank of America Merrill Lynch and Deutsche Bank AG are managing the deal.
The bond issuance could lessen the holding of Aabar from 9.1 percent to 7.2 percent upon maturity in 2016. Analyst Daniel Schwarz at Frankfurt-based Commerzbank AG shared that "it sends the signal that there's limited upside" for the company when a large stakeholder begins to monetize its share.
He further said that he doubts that Aabar intends to completely pull out from Daimler “but it can’t be ruled out.” In March 2009, the fund invested 1.95 billion euros in the automaker, providing an additional capital in the midst of the worldwide recession.