* Cap hike would bolster finances following Porsche deal

* VW authorised to hike capital by 90 mln eur

* Issuing new voting shares would dilute Lower Saxony stake

* VW voiced concerns over risk to credit ratings in May

* VW shares down 2.3 pct, biggest faller on Germany's DAX

(Rewrites, adding analyst, bankers, shares, background)

Volkswagen (VOWG.DE), Europe's largest carmaker, is considering raising up to 4 billion euros ($5.7 billion) ahead of a takeover of Porsche (PSHG_p.DE) to protect its credit ratings, the Financial Times reported on Monday.

Volkswagen is planning to buy Porsche's sports car business as fast as possible and, to finance this, they are thinking about strengthening their capital base, the FT quoted a person familiar with the situation as saying.

The FT did not provide further details.

VW ordinary shares were down 2.3 percent at 0930 GMT, the largest faller on German blue-chip DAX .GDAXI. They also underperformed the European auto sector index .SXAP, down 2 percent.

A capital increase would make perfect sense for VW and would enable it to maintain its low-A ratings on S&P and Moody's despite the planned full takeover of Porsche AG over a period of two years, UniCredit debt analyst Sven Kreitmair wrote on Monday, upgrading VW bonds to overweight from marketweight.

A spokesman for Volkswagen declined to comment.

Issuing new ordinary shares would dilute the 20 percent voting stake held by the German state of Lower Saxony, however, which has to maintain this level to preserve its blocking minority.

Alternatively, the company could issue preferred shares which don't have voting rights. If there's a capital increase, then only with preferreds, never with ordinaries, a banker familiar with the situation told Reuters.

VW preferred shares (VOWG_p.DE), which are more liquid than the ordinary shares, were down 3.6 percent. Another banker involved in the deal said the issue of a capital hike depends on whether VW would otherwise be prepared to temporarily let its rating slip to BBB+ from A-.

VW's management had sought, but did not receive, the necessary approval from shareholders in April for authorised capital worth a nominal value of up to 400 million euros by 2014.

If Volkswagen wanted to issue fresh non-voting shares, it would have to receive approval at a new shareholder meeting.


At present, VW can only raise its capital by a nominal value of 90 million euros until May 2011 through the issue of new ordinary shares, assuming management would gain the approval of its supervisory board.

This would allow for the issue of 35 million new ordinary shares, which would raise its capital base by nearly 12 percent.

Volkswagen said last week it plans a gradual takeover of Porsche, and Lower Saxony premier Christian Wulff said at the time that VW's supervisory board could approve a detailed plan on Aug. 13 with the aim of completing the deal in mid-2011. [ID:nSP513587]

Volkswagen's automotive operations had net cash of 10.7 billion euros at the end of March, so the group could afford to pay the reported sum of 8 billion for the Porsche acquisition.

VW had already said in early May that maintaining its existing credit ratings has top priority when considering any deal to create an integrated automotive group.

Germany's Der Spiegel reported recently that Porsche's debt totals around 14 billion euros. VW would need to pay Porsche roughly 7 billion for both the Porsche Holding auto dealership and a 49.9 percent stake in the Porsche AG sports car business, it said. [ID:nLP530383]

In order to bolster its negotiating position versus VW, Porsche said on Thursday it would seek at least 5 billion euros in fresh funds either through cash or a contribution in kind, or a mixture of both. [ID:nSP513587]

(Additional reporting by Philipp Halstrick, Edward Taylor and Marilyn Gerlach; Editing by Lincoln Feast)