* Asks banks to be ready for 10 pct cap hike - source
* Newspaper says ThyssenKrupp preparing hybrid bond
* Investors seen demanding clarity on Steel Americas first
* ThyssenKrupp declines comment
By Arno Schuetze and Maria Sheahan
FRANKFURT, Sept 5 German steelmaker ThyssenKrupp
AG is making final preparations for a capital-raising
it could launch as soon as it has decided on a plan for its
ailing Americas business, banking sources said.
Pressure has been rising on Chief Executive Heinrich
Hiesinger to raise cash as ThyssenKrupp, a symbol of Germany's
industrial prowess, is at risk of breaching loan covenants when
its financial year ends on Sept. 30.
But it is not yet clear how and when he could make a move.
Several capital markets bankers said ThyssenKrupp was carrying
out the necessary preparation work in line with its various
"If I was CFO (chief financial officer), I'd already have
that tucked away in a drawer by now," one banker said on
ThyssenKrupp declined to comment beyond pointing to
Hiesinger's most recent remarks.
He said last month he may not wait for a Steel Americas deal
to materialise before addressing the group's financial
situation, after his initial plan to first find a buyer for the
loss-making business was thrown off course as talks to offload
the unit dragged on for more than a year.
During that time ThyssenKrupp's finances have deteriorated,
so that by the end of June its gearing ratio - how much debt it
has compared to equity - had jumped to 185.7 percent from 148.2
percent three months earlier.
If it remains above 150 percent at the end of its fiscal
year in less than four weeks' time, banks could cancel an
undrawn 2.5 billion euro ($3.3 billion) credit line because of a
breach of covenants, and ThyssenKrupp has said its finances were
already causing alarm bells to ring at some of its customers.
One person close to ThyssenKrupp said the company had asked
banks to be ready to take part in an increase in its share
capital by 10 percent, which would raise about 800 million euros
at current prices, in an accelerated bookbuilding.
Sources said also last month ThyssenKrupp was already in
talks with hedge funds to persuade them to buy into any issue of
Bankers say such a capital increase with no subscription
rights could be thrown together within two or three weeks,
though anything above 10 percent would likely extend to two to
three months because it would include a rights issue, requiring
a prospectus and regulatory approval.
Yet a 10 percent capital hike would not be nearly enough to
fix ThyssenKrupp's finances, especially if there is no inflow of
cash from the sale of Steel Americas.
German daily newspaper Handelsblatt said ThyssenKrupp was
also planning a hybrid bond - one which combines elements of
debt and equity - worth as much as 1 billion euros in addition
to a share issue.
A hybrid bond would be expected to carry an interest rate of
more than 8 percent to justify the risk to investors - making it
expensive for ThyssenKrupp.
In addition, it could be counted as debt rather than equity
under new guidelines by credit rating agency Moody's, which
already has a "junk" rating on ThyssenKrupp's debt.
Equinet analyst Stefan Freudenreich said he still believed a
hybrid bond would make sense because it would help tide over
ThyssenKrupp financially until it gets an expected cash inflow
from the sale of Steel Americas and the repayment of a loan note
it granted Finnish steelmaker Outokumpu.
Either way, equity capital markets bankers say they expect
investors will demand clarity on ThyssenKrupp's plans for Steel
Americas before they offer up any cash, even if that just means
putting the sale on ice for the moment.
Earlier this week, a source told Reuters there was a chance
ThyssenKrupp could end up keeping Steel Americas as a "Plan B"