Wolfsburg - Volkswagen will have a 3.7 billion-euro ($4.2 billion) bond maturing next month - but the debt’s structure means it won’t add to the crisis-stricken automaker’s financial headaches.
Holders of the securities due on November 9 will be paid in VW shares instead of cash as the securities must be converted into equity. With the company’s shares hammered by an emissions-rigging scandal, investors may receive assets worth less than the original cost of the bonds.
The payment in stock instead of cash will come as relief to VW as it faces a multibillion dollar legal bill after admitting last month to fixing emissions tests in 11 million of its diesel-engine cars. The company lost as much as $33 billion in market value after the scandal broke and Warburg Research estimates damage to its sales and reputation may cost 35 billion euros.
“It’s like a ‘free’ capital increase,” said Jonathan Stanford, a Lugano, Switzerland-based fund manager at a unit of GAM Holding, which manages 124 billion francs ($128 billion). This is “bringing the company a welcome, albeit small, relief. The risk is that you might end up with a lot of stock that is not worth very much.”
CEO Matthias Mueller said this week VW will delay or cancel non-essential projects to slash spending.
The convertible bonds, which were issued in 2012, were quoted at 72.4 cents on the euro on Thursday, from 100.8 cents on September 17 a day before the scandal erupted, according to data compiled by Bloomberg. The conditions of the debt remain unchanged, Claus-Peter Tiemann, a spokesman for VW, said by phone on Wednesday.
Volkswagen shares tumbled to a four-year low of 92.36 euros after the scandal broke and were trading at 106 euros on Friday.
If the company’s shares were to stay at current levels, owners of the bonds would suffer losses, said Brice Perin, a Paris-based fund manager at Generali Investments Europe, which has 380 billion euros of funds under management.
The conversion may have some impact on some of VW’s investors, said Simon Oehri, a portfolio manager at Asset Management, which holds some of the maturing bonds.
“The Volkswagen brand as well as its access to the bond market are hurt,” said Vaduz, Liechtenstein-based Oehri. “Future convertible or straight bond issues will be very deeply analyzed by the market.”
BLOOMBERG