x UPDATE 2-Lanxess unveils 10 pct capital hike to fund overhaul
* No subscription rights for existing shareholders
* Proceeds to fund cost-cutting measures, preserve rating
* Q1 net unchanged, sales down 2.5 pct vs year ago
* Mulls strategic partnerships for rubber unit (Adds CEO comment on turnaround, details on credit rating)
FRANKFURT, May 7 (Reuters) - Germany's Lanxess, the world's largest maker of synthetic rubber, said it was selling new shares equal to 10 percent of its equity to fund restructuring measures and that it could seek a strategic partner for its rubber division.
The German company, formerly part of synthetic rubber inventor Bayer, has been suffering from sluggish demand for tyres. Asian rivals are challenging Lanxess's dominant position as both a supplier of rubber and buyer of butadiene, the main petrochemical used to make rubber.
"We must become significantly more competitive and profitable again," Chief Executive Officer Matthias Zachert, who started his job just over a month ago, said in a statement on Wednesday after the market close.
Lanxess said it was open for potential strategic partnerships for its rubber division and was considering the temporary or permanent shutdown of some plants.
The group added it needed to "balance its business portfolio", which depends on the automotive industry for about 40 percent of revenue, and would reveal more details in the second half of the year.
Zachert added he primarily had production or marketing alliances in mind, rather than outright mergers and acquisitions.
Seeking a tie-up with German peers Evonik or Bayer's MaterialScience unit was not his motive for taking the top job at Lanxess, but rather overseeing a turnaround, he told analysts in a conference call.
"It will be a very long and winding road ... This is not going to be a short-term fix. It will take two to three years."
It mainly makes rubber for tyres, door sealants and windscreen wipers, but its products also include chemicals for the treatment of leather and that go into making drugs and insecticides.
The new shares will be offered immediately to institutional investors in a private placement, with no subscription rights for existing shareholders.
Proceeds from the offering will be used to fund restructuring measures and to help preserve the group's investment-grade credit rating, Lanxess said.
Standard & Poor's rates the group "BBB", two rungs above non-investment grade.
Zachert, who took over as CEO last month, has been outspoken in criticising cash management under his predecessor Axel Heitmann, saying too much was spent on new plants and equipment.
Lanxess also posted first-quarter net income of 25 million euros ($34.8 million), unchanged from a year earlier, coming below the average analysts' estimate of 38.1 million in a Reuters poll. [ID:nL6N0NR1F8}
Sales fell 2.5 percent to 2.04 billion euros, compared with the consensus estimate of 2.08 billion.
Lanxess said that while it expected the economic environment to slowly recover during the year, competitive pressures would continue to weigh on synthetic rubber prices.
It gave an outlook for a rise in adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) to between 770 million euros and 830 million euros in 2014, from 735 million last year.
At current market prices, a 10 percent increase in share capital is worth around 440 million euros.
The new shares will be offered by an international consortium of banks to institutional investors immediately by means of a private placement, using an accelerated bookbuilding process.
The placement price and the proceeds from the issue will be made public on May 8, 2014, once the price has been fixed, Lanxess said.
The banking consortium hired to run the share issue includes Deutsche Bank and Bank of America, a person familiar with the matter said. (Additional reporting by Arno Schuetze, Edward Taylor; Editing by Philipp Halstrick, Jane Baird and Prudence Crowther)
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