VW follows Daimler in making green-bond debut for electric cars

Priscila Azevedo Rocha, Bloomberg News

An electric automobile symbol sits on an employee parking lot space at the Volkswagen AG headquarter factory in Wolfsburg, Germany, on Tuesday, Aug. 25, 2020. German companies have turned slightly more optimistic that the economy will continue on its long road to recovery, after the pandemic eroded spending and investment in the first half of the year. , Bloomberg

Volkswagen AG is making its green-bond debut, about two weeks after Daimler AG, as automakers tap socially responsible investors to help pay for the hugely expensive shift to electric vehicles.

The maker of VW and Audi brand cars is offering two euro bonds maturing in eight and 12 years, according to a person familiar with the offering, who asked not to be identified because they’re not authorized to speak about it. The company, which is one of Europe’s largest corporate borrowers, introduced a green-finance framework in March, just as coronavirus upheavals shuttered bond markets.

VW’s first green-bond sale, alongside huge European Union issuance plans, helps further propel the environmental debt market by adding greater size and variety to a sector traditionally dominated by banks, utilities and governments. The automaker may also benefit from surging investor appetite for green bonds -- particularly from new issuers -- which helped Daimler and Germany price recent debut sales at a discount to traditional offerings.

“There is a huge demand for green assets,” said Michael Kobel, a portfolio manager at Union Investment in Germany. “In terms of diversification and more investment opportunities, I am happy to see a growing number of issuers.”

VW plans to use green funds to help pay for electric-vehicle projects and charging stations, as it seeks to challenge Tesla Inc. and Renault SA in the growing market for battery-powered cars. The company aims to introduce about 75 new electric car models through by 2029, according to its green-finance framework. Efforts have been hindered by software issues in the ID.3 model. The company has also seen a recent spate of executive upheavals.

The automaker is initially marketing the 12-year tranche of its deal at 190 basis points to 195 basis points above mid-swaps, the person said. The company didn’t immediately reply to a Bloomberg News e-mailed request for comment on the sale.

Mercedes-Benz maker Daimler probably saved more than 1.3 million euros a year in borrowing costs by selling a green bond instead of a conventional note, based on Bloomberg calculations. The 1 billion-euro 10 year green bond priced more than 13 basis points tighter than its conventional, liquid spread curve, according to Bloomberg BVAL on Sept. 3.

Borrowers have syndicated the equivalent of about 64 billion euros of green bonds in Europe this year, according to data compiled by Bloomberg. The tally is closing in on 2019’s total of 70 billion euros, even after a coronavirus market shutdown earlier in the year.

Banco Bilbao Vizcaya Argentaria SA, Commerzbank AG, HSBC Holdings Plc, ING Groep NV and Societe Generale SA are working on the deal, according to the person familiar.