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. The current credit crisis in the international capital markets clearly emphasises the importance of sufficient liquidity procurement for companies.

Our external financial headroom 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 2007 mainly by our Dutch finance company, Linde Finance B.V., and our Corporate Centre. 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 in cash pools (in Germany, the UK, France, Italy, Switzerland, Scandinavia, the United States and the Benelux countries), or by Group loans from Linde Finance B.V. or The BOC Group plc. Occasionally, the Group Treasury (Glossary) also negotiates credit facilities with local banks, to take account of particular legal, fiscal or other circumstances.

Repayment of the acquisition financing

In the 2007 financial year, the repayment and refinancing of the acquisition financing for the purchase of The BOC Group plc were at the forefront of our treasury activities. We were able to reduce our net financial debt in this period from EUR 9.933bn to EUR 6.427bn.

The acquisition of The BOC Group plc in 2006 at a price of around EUR 12.4bn was assured by syndicated credit facilities of GBP 8.9bn and EUR 2bn (revolver). The syndicated credit line (Glossary) also serves as a back-up for our EUR 1bn Commercial Paper Programme
(Glossary) .

To repay this credit, we used disposal proceeds from those business activities which we were required to relinquish as a result of antitrust conditions imposed by the competition authorities or which are non-core activities. Cash flow from operating activities also contributed to the loan repayments. The proceeds from the sale of these activities and from the issue of bonds were used to reduce the amount drawn upon the syndicated loan commitment to around EUR 1.2bn at 31 December 2007.

Linde currently has a committed unused credit line (revolver) of around EUR 1.4bn from the international banking consortium which is available until 2011. This takes into account EUR 557m of commercial papers issued by Linde Finance B.V., which are backed up by the credit line.

Bond issues

In April 2007, we issued benchmark bonds with a total volume of more than EUR 2.4bn via Linde Finance B.V. in a very favourable market environment. The bonds, under the lead of Deutsche Bank, Commerzbank, Morgan Stanley, UniCredit and HSBC, were more than three times oversubscribed, with a high level of demand from long-term investors and retail banks. The transaction comprised a five-year fixed-rate bond of EUR 1bn at 4.375 percent, a ten-year fixed-rate bond of EUR 1bn at 4.75 percent and a 16-year sterling tranche of GBP 300m at 5.875 percent.

BOC bonds – Change of issuer

In the course of the BOC acquisition, Linde assumed capital market liabilities of The BOC Group plc.

Under current law, the assumption of these BOC liabilities results in an obligation to publish consolidated financial statements for The BOC Group plc until the end of the maturity period in 2017.

To increase our efficiency and achieve synergies from the acquisition, we decided to cease producing the consolidated financial statements for The BOC Group plc. To achieve this objective, we chose to adopt the following structure: Linde Finance B.V. assumed the liabilities of The BOC Group plc at the year-end. These exclude BOC liabilities of JPY 6bn, which were redeemed before the year-end. The liabilities assumed by Linde Finance B.V. are guaranteed by The BOC Group plc.

Other capital market activities

In 2007, the Debt Issuance Programme was increased from EUR 5bn to EUR 10bn. Under the programme, issues amounting to around EUR 2.7bn in four different currencies were outstanding at the year-end.

Most of the EUR 550m convertible bond issued in 2004 (EUR 445.3m) had been converted by the end of 2007 into 7,883,867 Linde shares.

Rating

Since 1999, the creditworthiness of The Linde Group has been rated by the leading international rating agencies, Moody’s and Standard & Poor’s. The rating is an essential requirement for a successful and sustainable presence in the capital market. Even after the BOC acquisition, our stated objective is an “investment grade” rating. A good six months after the BOC acquisition, in spring 2007, the rating agencies both increased Linde’s rating by one notch to BBB and Baa1 respectively. This increase in our rating was positively received by the capital markets and was conducive to the issue of the above-mentioned bonds.