* VW preference share likely to replace ordinaries
* Could put further pressure on VW ordinary shares
By Tyler Sitte and Kirsti Knolle
FRANKFURT, Aug 27 (Reuters) - Volkswagen AG's ordinary shares, a prominent feature of Germany's DAX index since its inception in 1987, could exit the index as early as the first week of September, sooner than many expect.
At play are options worth 17 percent of the voting rights in VW that will expire on or before Aug. 31 and are held by the Qatar Investment Authority and Credit Suisse.
Should these options be exercised as analysts expect, it would likely push VW's free float of readily tradeable stock under a minimum threshold established by Frankfurt stock market operator Deutsche Boerse AG.
"If the total options which expire on Monday and represent 17 percent of the total ordinaries are exercised, the free float of Europe's largest automaker would be below the 10 percent necessary for DAX membership," said Wolfgang Gerke, member of the Frankfurt Stock Exchange's exchange council.
Expulsion would likely pressure the value of VW ordinary shares, which last October traded at above 1,000 euros making the carmaker temporarily the world's largest by market value.
Index tracking funds, such as exchange traded funds (ETFs), would no longer have to hold VW stock to match its weighting on the DAX and if, as some speculate, the ordinaries are replaced by VW's preference shares, they would be removed from other automotive indices too.
Through a deal struck in the aftermath of Porsche's failed takeover of VW, Qatar is to assume a 17 percent voting stake in Volkswagen by acquiring cash-settled derivatives linked to VW ordinary shares.
Volkswagen said on Aug. 24 Qatar held options worth some 17 percent of VW voting rights as of Aug. 17. It also said Credit Suisse was holding financial instruments worth some 17.347 percent of VW's voting rights and that options worth 17 percent are to expire on Aug 31.
"These Credit Suisse-held financial instruments are at nearly the same percent as those held by Qatar and it appears that Credit Suisse is acting as the counterparty for Qatar's options," said Equinet analyst Tim Schuldt.
"It would be very unlikely that Credit Suisse would hold on to these instruments as they are likely used to hedge counter positions," Schuldt said.
A Qatar Investment Authority spokesman confirmed Credit Suisse acts as one of its financial advisors, but would not comment on the nature of the relationship. Credit Suisse declined comment.
CREDIT SUISSE HOLDING
Analysts said a careful reading of the VW statements showed Qatar would likely acquire a 6.8 percent stake in VW through options packages expiring on Aug. 27 and Aug. 31.
They also said it was very likely Credit Suisse would acquire a stake of 10.2 percent, amounting to the rest of expiring options on Aug. 31, which it could then exchange to Qatar later.
"The question remains how Deutsche Boerse will see Credit Suisse's holding in Volkswagen -- if they see Credit Suisse as intending to trade the shares and acting as a brokerage, or if they see them working together with Qatar and view them as an institutional investor," said a trader.
Typically, Deutsche Boerse does not consider shareholdings above 3 percent as free float, but it allows exceptions up to 25 percent for brokerages and banks holding short-term investments.
A Boerse spokeswoman said the exchange could not comment on a ruling ahead of time and pointed to its guidelines which say positions held for third parties or having a strategic interest cannot be considered as freely floating.
VW's free float is just under 27 percent. The German state of Lower Saxony owns a 20 percent stake, Porsche holds around 51 percent plus a 2.4 percent stake which is directly held by the Porsche and Piech families.
Qatar's exercising of its VW's options, perhaps even earlier than planned, is quite logical, analysts said.
Volkswagen preference shares are considered by index experts as most likely to replace VW ordinaries, with former DAX member Infineon a distant second.
"It makes sense, if one considers that Volkswagen wants to carry out a capital increase with its preferred shares. It would help with marketing for the preferred shares if they were already in the DAX," said UniCredit analyst Christian Aust.
The final decision on the matter rests with Deutsche Boerse management, who are advised by the exchange's Working Committee for Equity Indices on decisions about expulsions and inclusions.
The committee next meets on Sept. 3. However, Deutsche Boerse guidelines say rulings on free float can be made according to special "fast exit" provisions and stock can be removed from between two to 10 days after an announcement its free float has dropped below 10 percent. (Editing by David Holmes)