General Electric on Wednesday unveiled plans to raise at least $15bn in capital through stock sales to Warren Buffett's Berkshire Hathaway and the public.
The announcement came after a sharp rise in the cost of insuring debt for GE's finance arm forced the group to reassure investors for the third time in the past month that it would not face a funding squeeze.
GE plans to issue at least $12bn in common shares to investors. It will also sell $3bn in preferred shares to Berkshire, which will also receive warrants to buy another $3bn in common stock at $22.25 within five years.
"GE is the symbol of American business to the world," Mr Buffett said on Wednesday. They have strong global brands and businesses with which I am quite familiar."
His comments echoed his praise of Goldman Sachs after he bought $5bn in preferred stock from the Wall Street firm last week. And like Goldman, GE has attracted investor scepticism that it can endure the credit crisis unscathed.
Spreads on GE Capital's credit default swaps widened in early trading to 740 basis points, meaning it would cost $740,000 a year to insure $10m of debt for five years, according to Phoenix Partners. Immediately after GE announced its plans to raise capital, the spreads narrowed to 500bps.
GE's shares had slipped 5 per cent to $24.19 by mid-afternoon in New York, rebounding from the $22 low they touched earlier in the day.
Nigel Coe, an analyst with Deutsche Bank, cut his 2008 and 2009 earnings estimates for GE to "reflect a deterioration at GE Capital driven by tighter credit markets, asset shrinkage and debt pay-down".
