Aston Martin fuelled by Saudi Arabian cash

Aston Martin’s shares jumped by a fifth last week as investors celebrated a capital injection from Saudi Arabia. The luxury carmaker “will raise £653m via a placing and rights issue”, with Saudi Arabia’s Public Investment Fund (PIF) injecting £78m into the company and agreeing to take part in a separate £575m rights issue.

PIF will thus become Aston Martin’s second-largest shareholder, with 17% of the shares and two seats on the board. Executive chairman Lawrence Stroll argues that the deal “is needed to tackle Aston Martin’s oversized balance sheet”, with about half of the new funds put towards debt reduction, says Lex in the Financial Times. It should also give the company “more headroom to launch planned models”.

Still, all this will “not come cheap”. The Saudis will get a 25% discount for their first £78m of shares. Minority shareholders are being required to contribute £150m, a tall order given that those who invested in the initial public offering in late 2018 incurred losses of 96% . Those who refuse will be diluted by nearly 60%.

Try 6 free issues of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

Sign up for MoneyWeek’s free twice-daily newsletter.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Sign up

Investors should think hard before being “suckered by this road trip” again, says Alistair Osborne in the Times. While Stroll has improved operational performance, this isn’t a big deal as “the previous regime had flooded dealers’ forecourts with motors that they had to discount to shift”.

And the group is still burning cash at an alarming rate. In any case, who “wants to be a passenger in a corporate vehicle that shouldn’t be a public company”, now partly owned by “the human rights disaster that is Saudi Arabia”?