Volkswagen AG (VOW) plans to refrain from using its stock to raise capital in the near future after Europe’s largest automaker amassed 3.7 billion euros ($4.94 billion) in the last seven months by selling bonds convertible into its preferred shares.
“We currently do not foresee any more equity-linked issues,” VW Treasurer Joerg Boche said in an e-mail to Bloomberg. “On the other hand, we have a significant volume of refinancing of existing bonds and other financial instruments and will continue to utilize the financial markets.”
VW, which targets a minimum net liquidity of 7 billion euros to 8 billion euros and “feels comfortable” with 10 billion euros, expects to generate a positive net cash flow in the automotive unit for the rest of the year, Boche said. Liquidity at the automotive division fell 32 percent to 10.6 billion euros as of March 31.
VW today completed the sale of 1.2 billion euros in convertible bonds to finance expansion that includes new plants and taking full control of truck unit MAN SE. (MAN) VW is setting up new production sites and adding models to overtake General Motors Co. (GM) and Toyota Motor Corp. (7203) as the world’s biggest automaker by 2018. The German company, which already owns more than 75 percent of MAN, is offering to buy out other investors.
Today’s bond sale “provides Volkswagen with additional financial stability and flexibility to further execute our strategic growth and investment program,” Boche said. “There is no direct link to specific M&A projects.”
VW’s widely traded preferred shares gained 3.15 euros, or 2 percent, to 162.30 euros in Frankfurt trading. The stock has dropped 5.7 percent this year, valuing the German automaker at 73.9 billion euros.
The debt issue complements a similar financing move in November, when VW sold 2.5 billion euros in convertible bonds. Both included a coupon of 5.5 percent.
“Bonds have provided an attractive source of financing recently,” Boche said. “However, we also finance ourselves using syndicated bank loans, for example.”
Volkswagen outlined plans in November to invest 50.2 billion euros through 2015 on new models, additional plants and research and development. The maker of VW, Audi and Lamborghini cars plans to offset a contraction in the European market by rolling out 60 new and updated vehicles, and expanding in the premium segment, Chief Executive Officer Martin Winterkorn said in April.
The MAN takeover bid is part of VW’s strategy to become Europe’s largest truckmaker by increasing cooperation between the Munich-based company, Scania AB (SCVB) and its own commercial-vehicles unit. VW last year spent 4.5 billion euros to buy the 50.1 percent of the Porsche automaking business it didn’t already own and 860 million euros to purchase Ducati motorbikes.
JPMorgan Chase & Co. (JPM) was the sole bookrunner of the convertible note sale.
“We believe in our ability to convince investors that Volkswagen can continue to grow profitably, and hence we are confident that our share price can rise sufficiently to make the mandatory convertible a superior choice” over the company’s other funding alternatives, Boche said.
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