Volkswagen plans to sell asset-backed securities in China

Article by Christian A., on June 17, 2011

As auto sales in China surge, Volkswagen AG intends to sell asset-backed securities in the country when government rules allows the issuance of the debt, according to Stefan Rolf, who heads securitization at Volkswagen Financial Services AG (VW's financing unit). He said that VW is preparing for the internal project.

He added that the company will be issuing car loan-backed bonds in the country by the end of 2012 if government legislation is ready.

Asset securitization is favored by People's Bank of China officials such as Deputy Governor Liu Shiyu, who stated that it can help banks manage balance sheets and will ensure China's markets keep pace with its economic development.

The company is planning the securities as its vehicle sales in the country increased 20 percent in the first quarter, outpacing industry growth of 8.1 percent, the company stated in April. Banks make asset-backed securities by pooling loans into notes that are sold to investors.

This will allow lenders to increase capital more cheaply than by issuing unsecured debt. The sales of the bonds in Europe evaporated in 2008 when losses from subprime mortgage bonds in the U.S. pushed investors to avoid hard-to-value assets. Offerings have caught up since 2009.

There are no set rules for asset-backed debt in China, although some of the country’s lenders arrange private transaction that are known as informal securitizations to lessen the loan on their balance sheets, according to Fitch Ratings.

Volkswagen is also working on securitizations in France and Australia that may be ready within the next couple of years, Rolf said. Issuing local currency deals is also planned for Japan and Brazil.

Topics: vw, china

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