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VW returns to debt market with €8bn benchmark deal

Investors rushed to participate in Volkswagen’s return to European bond markets on Thursday, with the German carmaker’s first benchmark issue following the emissions scandal attracting huge demand.

The €8bn euro-denominated bond attracted €24bn of orders by late afternoon, when books were closed ahead of final pricing.

Bankers said the deal was launched with a spread 15 basis points tighter than initial indications.

“There was a lot of pent-up demand — investors were certainly looking to re-establish positions in the name and the credit,” said Rupert Lewis, a syndicate banker at BNP Paribas, which worked on the deal.

VW was the largest issuer of corporate bonds in Europe until the emissions scandal broke, when the it admitted to installing technology that enabled up to 11m diesel cars worldwide to understate harmful emissions in official tests.

Until this week, VW had not sold a benchmark bond in a big currency since August 2015. The carmaker has continued selling asset-backed securities, and was the largest seller in Europe at an annual pace of €4bn in both 2015 and 2016, according to Morgan Stanley data.

“They have been through a lot and got themselves to a position where they felt comfortable in re-accessing the market,” said Mr Lewis.

“They want to get back to normal business as usual and be a frequent user of the debt markets globally — this is their reintroduction”.

The new debt is being sold across four tranches, with maturities ranging from two to 10 years. The 10-year bond priced with a coupon of 1.9 per cent.

The company was the biggest issuer of corporate bonds in Europe from 2011 to late-2015, Dealogic data shows, but has since more heavily relied on securitisation markets, where loans and leases are packaged up and sold on to investors.

Despite avoiding bond markets in big currencies, the company has issued smaller corporate bonds in other currencies, including a renminbi-denominated bond in China last May. That followed three securitisation deals in China.

Corporate bond prices in Europe have been supported by €72bn of purchases from the European Central Bank, which has included company bonds in its stimulus programme since June last year.

At the end of March, the ECB will reduce its overall purchases from €80bn to €60bn a month, prompting question marks over future support for corporate credit. However, analysts suggest demand for the asset class remains strong.

“The whole debate about what the ECB is going to do has not pushed investors to the sideline,” said Srikanth Sankaran, an analyst at Morgan Stanley. “The political risk is still relevant but it’s not stymied investor behaviour.”

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