German auto maker Volkswagen AG (VOW.XE, VLKAY) said Thursday it will raise around EUR4.1 billion by issuing 64.9 million new preference shares against cash contributions, making it the largest capital increase in Europe's largest economy in recent years.

"The subscription price for the new preference shares...has been set at EUR65," Europe's largest auto maker by sales said in a statement.

Volkswagen said all new preference shares were placed in the preplacement. The allocation of preference shares to institutional investors is subject to a 27% clawback if the shareholders who have not assigned their subscription rights in advance to the global coordinators exercise their subscription rights.

A group of banks had agreed to subscribe and underwrite the new shares, with a notional value of EUR2.56 each and full entitlement for 2009 dividends, as well as to offer them to shareholders by way of indirect subscription rights.

BofA Merrill Lynch (MER), Citigroup Inc. (C), Deutsche Bank AG (DB), HSBC Trinkaus (TUB.XE) and J.P. Morgan (JPM) are acting as global coordinators and joint book-runners.

Ahead of the subscription period, the shares were being offered to private investors in Germany as well as in private placements to institutional investors in Germany and abroad. The so-called preplacement with institutional investors started Tuesday.

The company's three main shareholders, Porsche Automobil Holding SE (PAH3.XE), the German state of Lower Saxony and the emirate of Qatar, had agreed to transfer their subscription rights to the syndicate banks.

The settlement of the new preference shares attributable to subscription rights assigned by the major shareholders is expected on March 31. The final settlement of the remaining new preference shares is expected on April 16.

Volkswagen intends to use the proceeds from the capital increase to safeguard its financial flexibility during the integration of Porsche, which is due to be finalized in 2011, and maintain its current credit ratings.

Volkswagen will be seeking shareholder approval at its annual general meeting on April 22 to issue bonds with warrants or convertible bonds for a maximum of 40 million preferred shares in order to gain an additional financing instrument, moves that the company predicts will become increasingly common for boosting the financial flexibility of major joint-stock listed companies in the future.

Volkswagen wants to maintain room to maneuver financially as the company is gearing up for an aggressive global expansion.

Volkswagen recently acquired a minority stake in Japanese auto maker Suzuki Motors Corp. (7269.TO) to forge an alliance in producing small cars.

At the same time, speculation is swirling that VW might increase its 29.9% stake in heavy-truck maker MAN SE (MAN.XE) to foster cooperation with its Swedish Scania AB (SCV-A.SK) unit.

-By Christoph Rauwald, Dow Jones Newswires; +49 69 29 725 512; christoph.rauwald@dowjones.com
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