The maker of VW and Audi brand cars sold 2 billion euros ($2.4 billion) of green bonds divided between eight-year and 12-year tranches. Bids peaked above 11 billion euros, according to a person familiar with the offering, who asked not to be identified because they’re not authorized to speak about it.
VW will save almost 3 million euros a year in borrowing costs from the green-bond deal, as the carmarker followed Daimler in benefiting from pricing advantages versus conventional debt. Debut sales by two of Europe’s biggest corporate borrowers, alongside huge European Union issuance plans, will also help further propel the environmental debt market by adding more size and variety in a sector traditionally dominated by banks, utilities and governments.
“There is a huge demand for green assets,” said Michael Kobel, a portfolio manager at Union Investment in Germany. “I am happy to see a growing number of issuers.”
VW plans to use green funds to help pay for electric-vehicle projects and charging stations, as it seeks to challenge Tesla Inc. and Renault SA. The company aims to introduce about 75 new electric car models by 2029, according to its green-finance framework, which was published in March, just as coronavirus upheavals shuttered bond markets. Efforts have been hindered by software issues in the ID.3 model.
The company has been monitoring market conditions since the publication of the framework, it said in an emailed response to Bloomberg News questions.
Demand for the VW offering also shows that investors have appetite for green bonds from borrowers previously marred by environmental issues. In 2015, the automaker admitted that about 11 million of its diesel vehicles worldwide were fitted with devices that gave false readings during emissions tests. It is still contending with lawsuits from the Dieselgate scandal, while trumpeting new environmental initiatives.
“There is hope for companies which are associated with the most unsustainable practices,” said Daniel Ender, a credit strategist at ABN Amro Bank NV.
Volkswagen priced its 1.25 billion-euro eight-year tranche about 15.4 basis points tighter than its conventional curve, according to Bloomberg’s valuation service BVAL. The 750 million euro 12-year bond was around 13.6 basis points tighter. That translates into annual savings of as much as 1.92 million euros a year on the eight year tranche and about 1.02 million euros on the 12-year, based on Bloomberg calculations.