FRANKFURT ThyssenKrupp (TKAG.DE) has raised 882 million euros ($1.2 billion) in a sale of new shares, less than some analysts think it will need to pursue a turnaround after it failed to sell a loss-making plant and was forced to take back two others.
The fundraising saw activist shareholder Cevian lift its stake to over 10 percent, sources familiar with the matter said, which could step up the pressure on Germany's largest steelmaker to consider a bigger shake-up, such as more asset sales.
ThyssenKrupp, which has suffered three straight years of losses and racked up debts, is trying to move away from a bulk steel market hit by weak economies and overcapacity to more profitable products such as elevators and factory components.
But the group has struggled to extricate itself from its Steel Americas business and on Friday said it had only managed to sell its U.S. finishing plant, leaving it with a loss-making steel slab mill in Brazil. It was also forced to take back an Italian steel plant and an alloy unit sold last year.
"We think that the size of the capital increase is too small," Metzler analyst Lars Hettche said, adding any new problems at the Brazilian steel mill or the re-acquired businesses could trigger the need for another capital hike.
ThyssenKrupp shares were down 2.4 percent at 17.21 euros by 0945 ET on Tuesday, extending Monday's drop of 8 percent.
Its five-year credit default swaps (CDS) rose 4.2 percent to 243 basis points, according to Markit data, increasing the cost of insuring the company's debt against default.
ThyssenKrupp, long viewed as a symbol of Germany's industrial prowess, placed 51.5 million new shares with institutional investors at 17.15 euros apiece. That was at the lower end of the 17.05 to 17.635 euros range they were offered at and a discount of 2.8 percent to Monday's closing price.
The proceeds will be used to cut the group's net debt, which stood at about 5 billion euros at the end of September, and reduce its gearing - the ratio of its net debt to equity. In September, the group had to secure a waiver from its banks after its gearing breached the 150 percent level that could have seen creditors prematurely cancel a 2.5 billion euro credit line.
Analysts said the share sale and U.S. deal should cut ThyssenKrupp's gearing to just above 100 percent from 200.6 percent at the end of September. That is still far above 34 percent at world No. 1 steelmaker ArcelorMittal (ISPA.AS) and an industry average of 60-70 percent.
"The capital increase eases the pressure a bit," said Thomas Hechtfischer of shareholder rights group DSW. "But it would be difficult to digest any more bad news."
SHIFT IN INFLUENCE
The share sale also resulted in a shift in ThyssenKrupp's shareholder base, giving more power to Cevian, which has so far backed management's plan to sell non-core assets and cut costs.
Meanwhile, the Krupp Foundation, ThyssenKrupp's top shareholder and widely seen as a shield against takeovers or a break up of the business, did not buy new stock, allowing its stake to be cut to 23 percent from 25.3 percent.
That means that the Krupp Foundation may have to hand over one seat on ThyssenKrupp's supervisory board to Cevian, which prior to the fundraising had owned a stake of 6.1 percent.
Cevian declined to comment.
"I would welcome it if the Foundation's stake shrank," Union Investment fund manager Joerg Schneider, who holds shares in ThyssenKrupp, told Reuters ahead of the capital increase.
Some investors have criticized the Foundation for blocking more radical change at the company.
With ThyssenKrupp's finances still under pressure - credit rating agency Moody's reaffirmed its negative outlook on the company on Tuesday - some analysts said the group might have to consider more asset sales.
Baader Bank analyst Christian Obst said it could sell its components technology business, which makes car parts such as crankshafts and engine components, or could merge its steel trading business with its Italian plant to sell as a package.
But finance chief Guido Kerkhoff on Saturday brushed off speculation that ThyssenKrupp could sell any of its capital goods businesses, and analysts said the Krupp Foundation's influence was strong enough to make a break-up very difficult.
DRAIN ON FINANCES
On Friday, ThyssenKrupp agreed to sell its U.S. plant in Alabama to ArcelorMittal and Nippon Steel & Sumitomo Metal Corp (5401.T) for $1.55 billion, the low end of expectations and leaving its Brazilian problem unresolved.
A supply agreement for the Brazilian mill, part of the U.S. deal, guarantees at least 40 percent utilization for the next few years, but analysts said there was so much excess capacity in the market that business would remain tough.
ThyssenKrupp's Steel Americas business cost it almost 13 billion euros in investment and losses over six years, after plans to produce cheap slabs in Brazil and ship them to the United States to make products for cars fell apart when Brazil's currency rose and demand for vehicles slowed.
The German firm was also forced to take back a steel plant at Terni in Italy and an alloy unit sold to Outokumpu (OUT1V.HE), as the Finnish steelmaker - trying to overhaul its own finances - returned them in exchange for cancelling a 1.25 billion euro loan ThyssenKrupp gave it to finance a wider deal.
The businesses will require investment, further draining ThyssenKrupp's finances. Analysts say the Terni plant is loss-making and needs to be restructured, while the alloy unit, though profitable, is declining.
($1 = 0.7377 euros)
(Additional reporting by Tom Kaeckenhoff and Josie Cox; Editing by Mark Potter)