UPDATE 2-Porsche to raise $7 billion in capital -- sources


* To raise around 5 bln euros in equity capital

* Capital increase is condition for Volkswagen merger

* Porsche, underwriting banks decline comment (Adds background, no comment from Porsche and banks)

By Philipp Halstrick and Edward Taylor

FRANKFURT, March 25 (Reuters) - Debt-laden German carmaker Porsche will begin a 5 billion euro ($7.1 billion) capital increase in the next few days, clearing the way for a merger with Volkswagen, two sources close to the deal said on Friday.

Porsche Automobil Holding SE only earns investment income from stakes in Porsche AG sports cars and Volkswagen AG , and needs fresh equity before being folded into Europe's biggest carmaker. The underwriters of the mammoth issue are Deutsche Bank AG and Morgan Stanley and other banks could still join the syndicate, the sources said.

Porsche and the two banks declined comment.

The sources said the capital increase would raise a total of 2.5 billion euros from the Piech and Porsche families, as well as Qatar, all of whom hold ordinary shares.

The Piech and Porsche families will cough up 2.25 billion euros between them, while 250 million euros will come from Qatar, the sources said.

The rest of the 2.5 billion euros will be from owners ofpreferred shares, they said, adding that, if the amount falls below that figure, Qatar might also subscribe to the preferred shares, even though it has committed to do so.

"This step has already been approved. The capital increase will start in the next coming days," according to one person familiar with the preparations.

Porsche SE finance chief Hans Dieter Poetsch said last week that Porsche wanted to be an attractive investment in itself and shareholders subscribing to the capital increase would already get a payout in June, since the new shares would have full dividend rights for the shortened fiscal year that ended in December. [ID:nLDE72G0MI]

Poetsch has acknowledged events in Japan and the Middle East meant it was not an ideal time to tap equity markets in the next month or two.

Volkswagen chief executive Martin Winterkorn, who also serves as CEO of Porsche SE, said two weeks ago that preparations for the holding's planned 5 billion euro ($6.9 billion) capital increase in the first half of this year to pay down debt were "fully on schedule." [ID:nLDE7290NJ]

Porsche SE has piled up net debts of 6.3 billion euros. ($1=.7062 euros) (Additional Reporting from Alexander Huebner, Hendrik Sackmann and Arno Schuetze; writing by Marilyn Gerlach; editing by Greg Mahlich and Andre Grenon)



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