Michelin goes for growth with shock capital rise

PARIS — Global tyre manufacturer Michelin revealed an aggressive drive into fast-growing emerging markets on Tuesday, with a big capital increase which shocked investors and pushed down its shares.
The surprise announcement that the France-based group would raise 1.2 billion euros (1.6 billion dollars) with a preference issue for shareholders, but at a 31.0-percent discount to the last quoted price, drove Michelin shares down by 11.52 percent to 57.74 euros in midday trading.
Michelin pitched the issue price for the new shares at 45 euros per share, well below the price of 65.26 euros at the close of trading on Monday.
"The price proposed was not disappointing, but the drop is very big," said Xavier de Villepion, a trader at Global Equities.
Michelin said its plan was to quadruple sales in developing markets and chief executive Michel Rollier said the group intended to boost sales by a quarter within five years and by half in the next 10 years.
"The message, is to accelerate growth," Michelin's chief executive Michel Rollier told reporters. "The prospects for growth in world markets are considerable."
Michelin, known as a supplier of tyres for cars, trucks and aircraft around the world, and for its brand logo of a man made of tyres, said that the capital increase would enable it raise investment in 2011 to 1.6 billion euros from 1.2 billion euros.
The new capital would be used to drive up growth. In emerging markets, growth was expected to rocket from 2.0 to 2.5 percent per year now to 8.0-9.0 percent.
The strategy was intended to double sales in emerging markets, and in mature markets the group intended to raise sales by 25 percent by 2015, Rollier said.
The company said that the capital increase would strengthen its credit rating, and "in a general way, improve the group's financial flexibility."
At Global Equities, De Villepion said that the announcement by Michelin was timed to make best use of a recent rise in the price of shares in the company.
In July, Michelin reported a first-half net profit of 503 million euros compared to a loss of 119 million euros in the same period in 2009.
Michelin said at the time that it was benefiting from an extraordinarily strong recovery of the market for tyres.
Trading conditions in the auto sector, an important global economic indicator, improved in the first half this year after being hit by a slump in demand at the height of the economic downturn.
Sales in Europe and the US have slowed in recent months as many countries wind down cash cash-for-clunkers programmes launched last year to prop up the ailing sector during the crisis.
Much of the demand for new vehicles is coming from emerging markets, particularly in Asia.
Sales in China this year are forecast to reach 15 million units, an increase of about 20 percent on a yearly comparison.
In India, Asia's third-biggest auto market, sales are projected to triple over the next decade to six million cars a year from the current two million, according to industry estimates.