Aston Martin: Stroll negotiates a tough course

Control is critical in motor racing. Lawrence Stroll is recapitalising Aston Martin with the help of Saudi Arabia’s wealth fund to the tune of £653mn. An alternative offer from China’s Geely would have forced the executive chair to loosen his grip on the carmaker’s wheel.

The deal has approval from the grandstand. Aston Martin’s share price rose a quarter higher on Friday, valuing the sports car maker at £500mn

Stroll says the money is needed to tackle Aston Martin’s oversized balance sheet, which includes high debt and an effective interest rate of about 10 per cent. About half of the new funds will go to debt reduction. It then hopes to have more headroom to launch planned models.

The process will not come cheap. The Saudi Arabia Public Investment Fund will inject an initial £78mn for a 17 per cent stake through a placing at a quarter discount to the current share price. It will then take up its rights along with other shareholders to raise the remaining funds. Minority shareholders are being asked to contribute about £150mn.

Total debts will then decline to leave a cash buffer of about half a billion pounds. Net debt will fall from more than 3 times 2023 consensus ebitda to about 1.5 times.

No matter, this is a big ask for early investors who have incurred 96 per cent plus losses since the initial public offering in late 2018. Those who refrain will be diluted by almost 60 per cent.

Shareholders should complain about having to pay even more for the same business plan they had already agreed. True this added fuel will enable a needed revamping of front-engine models. Also, a new mid-engine range due in 2024 can proceed more smoothly. The hope is that the new models should double gross margin per vehicle from around the current 20 per cent.

But Aston Martin’s turnround effort resembles a Le Mans-style race. Expect more pit stops to come.