Financing principles and objectives

The aim of external financing and measures to safeguard liquidity is to ensure that the Group has adequate liquidity at all times. Our external financial margin is maintained primarily by an international banking group and the capital markets. Within the Group, the principle of internal financing applies, i.e. the financing requirements of subsidiaries are covered wherever possible by intra-Group loans.

As a result, the subsidiaries were again financed in 2006 mainly by our Dutch finance company, Linde Finance B.V., and our Corporate Centre, and in the case of BOC principally via The BOC Group plc. Centralised financing makes it possible for Group companies to act as a single customer on the capital markets and strengthens our negotiating position with the banks and other market participants.

The Group companies are financed either by the cash surpluses of other business units from cash pools (which exist in Germany, the UK, France, Spain, Italy, Switzerland, Hungary, Australia, Scandinavia, the United States and the Benelux countries), or by Group loans from Linde Finance B.V. or BOC. Occasionally, the Group Treasury (Glossary) also agrees credit facilities with local banks, to take account of particular legal, fiscal or other circumstances.

Acquisition financing of The BOC Group in 2006

In the 2006 financial year, the acquisition financing for the purchase of The BOC Group and the subsequent refinancing were at the forefront of our activities in the financial sphere.

The acquisition of The BOC Group in March 2006 at a price of €12.4 billion was assured by credit facilities of £8.9 billion and €2 billion (revolver) from five banks (Commerzbank AG, Deutsche Bank AG, Dresdner Kleinwort Wasserstein, Morgan Stanley Bank Interna-tional Limited and The Royal Bank of Scotland plc). This financing commitment was then syndicated successfully to 50 banks worldwide. The syndicated credit line (Glossary) also serves as a back-up for our €1 billion Commercial Paper Programme (Glossary) and replaces the €1.8 billion syndicated credit line agreed in 2005.

To repay this credit, we will use the profit on disposal of those business activities which we have been required to sell as a result of antitrust conditions imposed by the competition authorities, as well as the profit on disposal of the KION Group at the end of 2006. We promptly fulfilled most of the conditions imposed and, given the good market environment, succeeded in achieving prices for these sales which exceeded our original expectations.

Structure of the acquisition financing:

• A1: £1.4 billion, matures in 2009
• A2: £2.0 billion, matures in 2011

• £5.5 billion, matures in 2008

• Revolver, €2.0 billion, due in 2011

In the summer of 2006, we successfully completed two further capital market transactions.

1) €1.8 billion increase in share capital via a rights issue
The increase in share capital was received very positively in a relatively difficult market environment. In the period from the announcement of this measure to 31 December 2006, the Linde share price increased by 25.1 percent.

2) Hybrid bond for €700 million and £250 million
Hybrid bonds are included in the calculation of equity by rating agencies, depending on their form. Against this background, we were able to make a successful placing of an innovative bond under the direction of Barclays Capital, Citigroup, Dresdner Kleinwort Wasserstein and UBS in a volatile market environment. Due to the terms of the bond, the rating agencies, for their own purposes, are including 50 percent of the nominal value of our hybrid bonds in the calculation of equity. The hybrid bond met with a great deal of interest from investors. Given that Linde had issued the first institutional corporate hybrid bond in Europe back in 2003 (€400 million; 6 percent), we were the first to be active in this market segment with a second issue, and also the first to issue a corporate hybrid bond in £ sterling.

Due to the issue of the hybrid bond, the increase in share capital and the proceeds from the sale of parts of the Group, it was possible to reduce the borrowing from the syndicated credit facility by €6.6 billion at the year-end. Linde currently has available until 2011 an agreed unused credit line of around €1.6 billion from the international banking consortium. This takes account of around €224 million of commercial papers issued, for which the credit line serves as a back-up.

Under the €5 billion Debt Issuance Programme , issues worth €1 billion in four different currencies were outstanding at the end of the year.

Of the €550 million convertible bond issued in 2004, €181.7 million had been converted by the end of 2006 into 3,216,935 Linde shares.