Financing of long-term liabilities

Founded under private law, the RAG Foundation regards itself as trustee of the public authorities in order to release them from the costs resulting from the RAG Corporation’s long-term liabilities due to coal mining as of 2019. According to current calculations (annual financial statement of 2011), the Foundation will need assets of approximately 10.8 billion euros as of 2019 in order to use the corresponding interest return to finance the measures listed under long-term liabilities. An opinion by KPMG, rendered in 2006, had initially estimated this amount at 6.9 billion euros. The increased amount results from lower interest rates and price developments.

How does the Foundation build up this capital stock? After having sold a stake of 25.1 per cent of Evonik Industries AG to British finance investor CVC in 2008, the RAG Foundation currently holds financial assets of 1.4 billion euros, predominantly in the form of fixed-interest securities. In accordance with the joint agreement developed in 2007, the RAG Corporation will additionally transfer 1.5 billion euros to the RAG Foundation as soon as subsidized coal mining will have ceased in 2018.

A shortage of funds to finance and permanently cover the coal mining’s long-term liabilities as of 2019 will be balanced by income on capital investment, dividends from Evonik Industries AG shares, and Evonik Industries AG’s initial public offering. Preparations for an IPO have started in April 2011 - the aim is to introduce Evonik Industries AG onto the capital market within the next 15 months.

In keeping with the taxpayers’ interests, the Foundation aims at listing Evonik Industries AG as company focused on specialty chemicals in order to achieve the highest possible value: the higher the targeted purchase price, the higher the foundation assets to finance the long-term liabilities.

In case – against expectations – the Foundation’s funds should be insufficient at some point, the mining states of North Rhine-Westphalia and Saarland as well as the German Federal Government will, according to their commitment stipulated in the Legacy Agreement, provide the funds required to finance and permanently cover the long-term liabilities.