Porsche's VW options quandary: asset or liability?

By Edward Taylor

FRANKFURT (Reuters) - The future of two of Germany's best-known auto groups hinges in large part on the value of a mystery package of Volkswagen VW.L (VOWG.DE) options cornered by Porsche (PSHG_p.DE).

The financial instruments known as put and call options give debt-laden Porsche the right and potentially the obligation to buy as much as 20 percent stake of Volkswagen, likely influencing the course of attempts by Porsche to sell a stake to Qatar and merge with VW.

A Porsche spokesman declined to reveal details of its derivatives strategy, and little is known about the options -- such as the relative amount of puts and calls, the price at which they were bought, or the proportion that need to be converted into shares.

"Whether the VW derivatives are an asset or a liability is an unanswered question," said Sal. Oppenheim analyst Christian Breitsprecher. "Will Porsche earn money with this, or will it cost them?"

That question is key to what happens to the German sports car maker, whose 9 billion euros (7.72 billion pounds) in debt forced it to abandon efforts to build a VW stake of 75 percent.

Porsche chief executive Wendelin Wiedeking is seeking to bolster the auto maker's finances ahead of merger negotiations with VW to create an "integrated" company. The sports car maker is exploring new ways to pay down its debt after being turned down for a 1.75 billion euros loan by state bank KfW.

Porsche has said it is close to securing an investment from Qatar. Other ideas under consideration are a capital increase and the sale of the VW derivatives package, according to people familiar with Porsche's thinking, who added it may even combine some of these proposals.

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