Volkswagen Follows Toyota, Ford With Yuan Debt-Sale Plan

Volkswagen AG plans to issue about 800 million yuan ($128 million) of asset-backed securities in China as soon as this month, following similar sales by Ford Motor Co. and Toyota Motor Corp., a person familiar with the matter said.

The securitised notes, due August 2020, are backed by automotive loan receivables originated by Volkswagen Financial (China) Co., a unit of Volkswagen Financial Services AG, Fitch Ratings Ltd. said in an e-mailed statement yesterday. The sale’s lead manager is China International Capital Corp., the person said asking not to be identified because the details are private.

“This offering opens a door to international investors,” said Helen Wong, a Hong Kong-based senior director on the structured finance team at Fitch. It’s the first securitisation backed by Chinese automotive loan receivables which has international ratings, according to the ratings company.

Toyota Motor Finance (China) Co. sold 800 million yuan of asset-backed securities on May 23, according to a statement posted on Chinabond website. Ford Automotive Finance (China) Ltd. also sold 800 million yuan of similar securities last month, according to Chinabond. The number of civilian vehicles on China’s roads will rise to 200 million units in 2020, from 127 million last year, according to the China Association of Automobile Manufacturers. Some 1 billion people could hold a driving license in the next 10 to 15 years.

Financing Needs

“The growth in China’s auto sales has been remarkable during the last few years,” said Jerome Cheng, a senior credit officer in Moody’s Investors Service’s structured finance group in Hong Kong. “Because of the increase in sales and the increase in auto loans, there will be additional financing needs from auto finance companies.”

Fitch assigned an expected AA rating to 699 million yuan of Volkswagen’s Class A notes, an expected A- score to 44 million yuan of Class B notes and left 52.7 million yuan of subordinated notes unrated, according to yesterday’s statement. Moody’s assigned provisional structured-finance ratings of Aa3 on the Class A securities and Baa2 on the Class B notes.

There was no immediate reply to questions about any ABS offering sent to Volkswagen Financial Services.

The Volkswagen transaction is the first time for Moody’s to rate an onshore ABS, according to the ratings company.

“This transaction is targeting some offshore investors as well,” said Moody’s Cheng. Broadening the investor base beyond China for such yuan-denominated offerings is in issuers’ interest in order to achieve better pricing, he said.

As of March 31, the portfolio of assets backing the notes consisted of 13,696 loans with an aggregate discounted principal balance of 799.7 million yuan, according to Fitch. Six brands of cars are being securitised as collateral in the pool, namely VW, Audi, Porsche, SKODA, Bentley and SEAT, and the weighted average effective interest rate of the securitised portfolio is 8.7 percent, it said.

— With assistance by Judy Chen

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