- Automaker said to meet Monday with banks on funding plans
- VW said to pursue financing to provide cushion for crisis
Volkswagen AG is working with banks to put together as much as 20 billion euros ($21.5 billion) in short-term bridge financing to show that the automaker has adequate liquidity to weather the emissions cheating crisis, two people familiar with the matter said.
VW does not need the money currently and is seeking extra funds to create a financial cushion, said the people, who asked not to be identified discussing private talks. The automaker will begin meeting with about a dozen prospective banks on Monday at its headquarters in Wolfsburg, Germany, to go over the proposed funding, which it aims to have in place before the end of the year, the people said.
"We have always considered that a well-diversified portfolio of funding tools gives us the necessary flexibility to offer appropriate and competitive financing options for our customers as well as our industrial investment needs,” Volkswagen said in an e-mailed statement to Bloomberg, declining to give further details. “It is perfectly normal that we are in a constructive ongoing dialog.”
The scandal has spread since Volkswagen first admitted in September to cheating on diesel pollution tests. The carmaker will need to recall as many as 11 million diesel vehicles worldwide and admitted earlier this month that another 800,000 cars had unexplained inconsistencies in carbon dioxide output. By 2017, the price tag of VW’s emissions woes will probably reach about 25 billion euros, Barclays Plc estimated on Friday.
“It makes perfect sense” to shore up financing, said Sascha Gommel, a Frankfurt-based analyst for Commerzbank AG. “In order to protect their rating, they need to show that liquidity will never become an issue for them, because then you have a vicious circle. If the ratings agencies think you won’t have cash and they downgrade you, then your funding gets more expensive.”
UniCredit SpA and Citigroup Inc. are among banks offering to lend about 2.5 billion euros each, people familiar with the talks said.
Volkswagen has the equivalent of 2.57 billion euros in bonds maturing this year, 14.3 billion euros next year and 13.5 billion euros in 2017. The company said earlier Friday it has put bond financing on hold because it needs time to update its documentation to reflect potential fines and penalties. Thus far, the automaker has set aside 6.7 billion euros to recall diesel cars and estimated the economic risk of the CO2 irregularities at another 2 billion euros.
Volkswagen’s automotive division had 27.8 billion euros in net liquidity at the end of the third quarter, with the carmaker categorizing about 10 billion euros of that as a buffer to support credit ratings. Fitch Ratings downgraded the company’s debt by two levels on Nov. 9, joining Standard & Poor’s and Moody’s Investors Service.
Securing bridge financing would show Volkswagen is “moving from the discovery phase to dealing with the problem,” said Arndt Ellinghorst, a London-based analyst for Evercore ISI.