At peak, Volkswagen is world's most expensive company

Wednesday, 29 October 2008, 12:09 Hrs
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Frankfurt: A shortage of shares in Volkswagen drove the stock price so high Tuesday that the German carmaker was theoretically the world's most valuable corporation.

If every voting share in Volkswagen had been worth 1,005 euros ($1,257), the top price of the day on the Frankfurt Stock Exchange, the entire car company would have been worth more than US oil firm ExxonMobil, which is valued at about $334 billion.

Germany's financial markets regulator, BaFin, said it was "analysing" the price surge, which caused panic among hedge funds, which usually make profits from trading stock futures.

This week, the hedge funds were caught off-foot by luxury-car manufacturer Porsche quietly obtaining options to increase its stake in Volkswagen to 74 percent by next year. Porsche revealed its hand Sunday.

The newspaper Financial Times Deutschland said the hedge funds may have lost 15 billion euros ($19 billion) in the panic Monday over Volkswagen stock.

The shares eased Tuesday from their peak, trading around noon at 640 euros, up 23 percent from the Monday close, thrusting the DAX higher although most of the other 29 stocks on the stock index were weak.

A BaFin spokeswoman said it was unlikely the Bonn-based regulator would announce any conclusions this week from its study.

Speculators who had expected the Volkswagen share price to fall were caught unprepared when they sold the stock short.

Short sellers are investors who typically borrow shares and immediately sell them in the stock market at a high price, in the belief that they can purchase identical shares at a lower price at a later date and return them to the lender.

Market sources said 12-15 percent of Volkswagen shares had been subject to short-selling contracts, although less than six percent of the company's shares were believed to be in free float.

The German state of Lower Saxony owns 20.1 percent of Volkswagen and those shares are not for sale. If Porsche were to yield up its options again, it could earn an enormous profit.

The Frankfurt Stock Exchange was criticised by fund managers.

One type of investment fund mimics the precise mix of shares in the DAX. By such rules, half the value of such a tracking fund would have had to consist of Volkswagen shares Tuesday. But many managers reportedly decided not to pay the high price.

The stock exchange said it was not considering removing Volkswagen stock from the DAX to meet fund managers' concerns.

"As long as five percent of the stock is in free float, there is no reason to do so," a spokesman said.
Source: IANS
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