Porsche shares help to overcome market turmoil in one of the largest market debuts in Europe

Porsche is known for its success, performance, and best-in-class quality. On Thursday, shares of the luxury carmaker were able to withstand market turmoil and go public in a massive initial public offering.

The shares traded at 85.68 euros on Frankfurt Stock Exchange. This was above the initial public offer (IPO) price of 82.5 euros set Wednesday by Volkswagen’s parent company. It also outperformed the weak Frankfurt stock exchange. Volkswagen raised 9.4 Billion Euros ($9.1 Billion) through the offering. It plans to use the money for investments in software and electric cars as the global auto industry shifts to the energy transition.

The offering was not only one of the largest in European history but also comes against the backdrop of rising interest rates, the war in Ukraine, and fears of a recession in major countries like the U.S. and Europe. The strength of Porsche’s IPO demonstrates that a strong brand can still attract buyers despite a weak economic climate.

What is an IPO?

An IPO is an initial public offering.

To become publicly traded, private companies can issue shares to the public. Private companies might do this to raise money, pay down debt, or make strategic acquisitions.

What was the size of Porsche’s IPO in 2009?

According to Refinitiv, figures from financial market data provider Refinitiv, it’s the third-largest deal in Europe. It was valued at $16.6billion in 1999 by Enel, an Italian electrical utility, and $12.5billion in 1996 by Deutsche Telekom.

Volkswagen sold 12.5% Porsche shares to non-voting investors under Thursday’s offer. Porsche Automobil Holding SE bought another 12.5% plus one share of voting shares at a 7.5% premium. These were the Porsche and Piech families that descend from Ferdinand Porsche, the automotive pioneer. They are also Volkswagen’s controlling shareholder, holding 53% of the voting shares.

The total proceeds from the sale of both blocks of shares amounted to 19.5 billion euros. 49% of that amount will be paid as a dividend to Volkswagen shareholders. The rest of the amount will be used by VW to finance future technology investments.

Who bought Porsche IPO shares?

Although it is difficult to identify all buyers on the first day of the auction, the Qatari state investment funds, Norway, Abu Dhabi, and T. Rowe Price took stakes.

Why is Porsche’s IPO timing important?

So that they can get the best price for their shares, companies usually go public when the economy is strong. According to EY, last year, when the stock exchange was at record levels and people still felt optimistic, 322 companies went public, raising $117.48 million in the first three quarters.

This year’s mood has changed due to soaring inflation and the war in Ukraine. There is also an energy crisis, rising interest rates, volatile markets, and a potential global recession. The Stoxx 600 Index in Europe and the three major U.S. stock indexes are currently in bear markets. This means that they have all fallen below 20% from their peak.

Rachel Herring, EY Americas IPO lead, stated that the U.S. IPO market has seen its slowest start in six decades. Porsche’s debut is remarkable because only 83 companies have been public and raised $7.27 billion. Investors are still attracted to profitable companies that have strong brands.

Why are people still willing to purchase Porsche?

Porsche is not only cool with its iconic 911, Cayenne, and Boxster cars but also has the financial resources to support its success.

Porsche delivered 302,000 cars last year at an average selling price of well over $100.000. The company’s earnings increased 24.5% over the previous year and it earned a 16% return on sales. This was an increase of 9.7% from the financial crisis in 2009.

Porsche is considered more resilient to a global recession than other cars. People who can afford a Porsche will likely be able to absorb rising prices and an economic slowdown more easily.

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