Aabar to issue €750m of bonds linked to Daimler

Aabar Investments launches a 750 million euro bond linked to Daimler shares.

Mercedes-Benz E-Class automobiles sit on the production line in the Mercedes-Benz factory in Sindelfingen, near Stuttgart, Germany, on Wednesday, Nov. 25, 2009. Daimler AG's Mercedes-Benz expects China to surpass the U.K. as its third-biggest market next year with its sales growth in the Asian country outpacing the overall auto market. Photographer: Hannelore Foerster/Bloomberg
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Aabar Investments, a large holding company owned by the Abu Dhabi Government, is selling €750 million (Dh3.88 billion) of bonds convertible into shares in the German car giant Daimler.

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The bond announced yesterday could reduce Aabar's 9.1 per cent holding in Daimler, which makes Mercedes-Benz cars and has a number of partnerships with the investment company. Aabar bought the Daimler shares in 2009 to help the car maker through the toughest stretch of the financial crisis.

Aabar said its "commitment to its investment in Daimler remains unchanged", but noted the value of the bonds represented about 1.1 per cent of all outstanding Daimler shares. Under the terms of the bond sale, Aabar can decide whether to pay back investors in cash, with Daimler shares or a combination of the two.

If the company elected to pay back all of its bonds with Daimler shares, its stake in the company would be reduced to about 8 per cent.

Aabar said its "commitment [to Daimler] is further underpinned in the terms of the bonds by Aabar's ability to choose cash settlement of the bonds and by Aabar taking further upside exposure over Daimler shares via certain derivatives transactions".

In launching the bonds, Aabar said it was "taking advantage of the current market conditions" and "attractive financing" available through bonds linked to companies' stock.

Since Aabar became Daimler's biggest single shareholder two years ago, the companies have become increasingly close. They jointly own a stake in Tesla Motors, which makes electric cars, and together control the Mercedes-Benz GP Formula One team. They are also involved in a venture to make lorries in Algeria.

The new bonds are set to pay interest of between 3.5 and 4 per cent per year, and they are to be exchangeable for Daimler shares at a 30 per cent premium to the average share price between yesterday and the end of the week. Daimler's stock was at €48.35 in midday trading yesterday, up by about 2 per cent from the previous day's close.

The deal is expected to settle on Friday and is being managed by Bank of America Merrill Lynch, Deutsche Bank and Morgan Stanley.