FRANKFURT Pressure is rising on German conglomerate ThyssenKrupp (TKAG.DE) to seek cash from shareholders as the indebted firm's plans to pivot its strategy from steelmaking to technology stalls and investor concerns grow.
After being named chief executive in early 2011, Heinrich Hiesinger set a course away from the volatile steel sector to focus on higher-margin businesses such as elevators and factory equipment.
To do that, he needed to sell ThyssenKrupp's loss-making Steel Americas business to free up time and money. But after more than a year of talks, no deal on the mills in Brazil and the U.S. state of Alabama is in sight and Hiesinger says he may not wait for a sale before launching a capital increase.
"With the Americas seemingly stalling, and risk of the company attempting a capital increase without clarity on this issue, we have increased our short-term sense of caution," Credit Suisse analyst Michael Shillaker said.
His comment comes after ThyssenKrupp reported a 362 million euros ($479 million) net loss for its third quarter through the end of June and said it was at risk of breaching loan covenants.
Shares in ThyssenKrupp fell as much as 5.4 percent on Wednesday and were down 2.1 percent at 16.495 euros at 0644 ET, making them the third-biggest decliner on Germany's blue-chip DAX index .GDAXI.
The five-year cost of insuring ThyssenKrupp's debt against default was meanwhile trading tighter on the day, but has widened by around 25 percent to approximately 283 basis points bid, since the end of May according to Markit data.
LOOMING CAPITAL INCREASE
Since Hiesinger took the helm in 2011, ThyssenKrupp's stock has lost 45 percent of its value, and its equity capital has shrunk by three quarters to 2.9 billion euros, putting a strain on its balance sheet.
While its net debt was little changed at 5.3 billion euros at the end of its third quarter, the decline in equity caused its gearing ratio - how much debt it has compared to equity - to jump to 185.7 percent from 148.2 percent three months earlier.
If it remained above 150 percent at the end of its fiscal year in September, banks could cancel an undrawn 2.5 billion euro credit line because the group would be in breach of covenants.
ThyssenKrupp has been expected to need a capital increase to bolster its finances, but the company so far had said it would not make any decision on the matter before it had found a buyer for Steel Americas.
Now Hiesinger said he may not wait that long if customers grew too concerned about ThyssenKrupp's finances.
"If we would receive a signal that (customers) are raising doubts on our financial position and our capability to have undisputed access to the capital market, then we would really take appropriate steps, independent of Americas," he told analysts during a conference call late on Tuesday.
Selling new shares while the outcome of the Steel Americas sale is uncertain would weigh on the price that ThyssenKrupp can get for its new shares and would require it to disclose details on risks that could further depress investor sentiment.
ThyssenKrupp tried to allay investors' concerns over its financial strength, saying that it would ask the banks that granted the credit line, which include Commerzbank (CBKG.DE) and BNP Paribas (BNPP.PA), to waive the covenant.
Even if banks cancelled the credit line, which it said was unlikely, it would still have enough liquidity to cover debt maturities, ThyssenKrupp said.
At the end of June, ThyssenKrupp's liquidity in the form of cash and undrawn credit lines stood at 7.2 billion euros. Gross financial liabilities repayable through September 2014 are 2.1 billion euros.
(Additional reporting by Josie Cox; Editing by Erica Billingham and Marilyn Gerlach)