Volkswagen has laid the foundations for other corporates to get their funding plans back on track, with a popular €1.75bn green dual-tranche offering on Thursday.
The deal was the first in the euro investment-grade market in more than a week and only the second in nearly a fortnight, as a series of banking disasters stopped supply. But the German automaker's €1bn three-year and €750m six-year green notes should help restore confidence. The bonds were more than 3.5 times covered, with combined final books of over €6.3bn. Cheap initial pricing levels helped the blue-chip credit build momentum, while VW (A3/BBB+) also targeted defensive tenors with an ESG label.
"Volkswagen is really the perfect name to reopen primary - strong credit, very well covered name, green label and generous IPTs to attract investor attention. Demand was very strong, highlighting how much cash still remains on the sidelines," said a portfolio manager.
The March 2026s and March 2029s landed at mid-swaps plus 85bp and 135bp, respectively, on final books of over €3.35bn and €2.95bn, via Commerzbank, Deutsche Bank, NatWest Markets, RBC Capital Markets and Societe Generale. Only the longer tranche saw some attrition from peak orders of €3.1bn.
Initial price thoughts were in the areas of 115bp and 160bp, which were seen as 40bp wide of fair value, according to bankers on and away from the trade. That means the issuer paid final concessions of 10bp–15bp, in line with what most market participants expected for a reopening trade. Even those that thought the final concessions were a bit too big, still said the outcome was good.
"A little cheap but you can't blame them. Good deal, lots of demand," said a banker away from the deal.
While some bankers questioned the quality of the books given the juicy spread levels for a low-beta credit, a lead said real money accounts were the anchors of the deal.
"Yes, there may be some tourists in the middle portion of the book, but among the top 10 lines, not one of them is a fast money account," he said.
Though the deal had to pay up in terms of spreads, the respective overall yields of 3.963% and 4.277% were broadly in line with its previous November issue. The November 2025s, February 2028s and May 2030s landed at yields of 4.141%, 4.297% and 4.467%.
Controversial green
Volkswagen's green bonds came as non-profit research group International Council on Clean Transportation revealed on March 22 that millions of diesel cars producing "extreme" levels of toxic air pollution are still on the roads in Europe and the UK, seven years after the Dieselgate scandal first broke. The highly polluting vehicles include Volkswagen's models.
"VW's ESG story does continue to divide opinion. Those taking a forward looking approach will hone in on the shift to battery powered vehicles but, on the other hand, many cannot forget the Dieselgate scandal, which continues to be fought in the courts," said the portfolio manager.
The company is also under fire over its plant in China's Xinjiang region, which rights groups have documented human rights abuses, including mass forced labour in detention camps. China has denied any abuses in Xinjiang, according to a Reuters report last month, while Volkswagen said it has never found evidence of forced labour among its Xinjiang workforce and its presence is positive for locals.
Despite such ESG concerns, the new bonds were smooth-sailing, according to the lead. "It was a topic for some investors but the deal still went well," he said.
Volkswagen told IFR that the company is in "continuous and intense exchange with our investors and have a very good understanding" of the ESG concerns.
Volkswagen International Finance is the issuer of the new bonds and Volkswagen is the guarantor.