Covestro shares drop after Bayer sells 10.9% stake

LONDON (ICIS)–Shares in Covestro slumped on Wednesday after former owner Bayer sold off a stake in the Germany-headquartered chemicals producer worth almost €1.5bn.

Bayer, which spun Covestro out into a listed independent company in October 2015, placed 22m shares in the business with institutional investors at €66.50 per share, representing a 10.9% stake in its former subsidiary.

The sale was agreed on Tuesday and ownership of the shares is expected to be completed on 3 March, cutting Bayer’s remaining stake in Covestro to 53.3% from 64.2%.

Covestro’s share price had fallen by nearly 7% from Tuesday’s close as of 9:06 GMT on Wednesday.

Bayer, which is currently in the process of acquiring US-based agrochemicals and seed treatment giant Monsanto, will use the proceeds to pay down debt, the company said.

Covestro, which benefited last year from tightness in the toluene diisocyanate (TDI) and methyl-di-p-phenylene isocyanate (MDI) markets, has seen its share price rise from around €25/share shortly after listing on the Frankfurt Stock Exchange.

According to analyst Bernstein, the sale gives Bayer greater flexibility in its fund-raising plans to finance the Monsanto acquisition, and could allow it to scale back the additional equity it needs to raise.

The company is planning a €13.4bn rights issue, Bernstein noted earlier this month, which could stand to dilute existing shareholder equity, but the Covestro stake sale provides scope for Bayer to reduce the scale of the fundraising.

“As expected, Bayer said they will use the proceeds to pay down debt, but we think it gives them more flexibility to potentially reduce the equity raise amount,” Bernstein said in an investor note.