Volkswagen Financial Services demonstrated the importance of the renminbi bond market in the company’s growth strategy with another fund-raising exercise amounting to 4 billion yuan (US$580 million).

The three-year asset-backed securities (ABS) deal, conducted in a book building process and announced on April 26, was priced at par with a coupon of 5.20%. Issued by Volkswagen Finance (China) Company, it was the largest single-tranche bond by an auto-finance company so far. The paper was fully placed with Chinese investors.

The bond issue is an important step for Volkswagen Financial Services in intensifying its Chinese capital market activities, says the company’s head of group treasury and investor relations, Bernd Bode.

“It is our intention to refinance our growth in China locally within that country and in a diversified manner,” he points out. “That is why we are active in the Chinese financial market, both with our financial bonds and ABS programme as well.”

During the past few years, Volkswagen Finance (China) has been able to steadily expand its financing business and achieved a new record level at the end of 2016 with a portfolio of more than 860,000 current contracts – or 31% bigger than in 2015.

Citic Securities and China Construction Bank acted as the arrangers of the transaction.

The most important components worldwide in the strategic refinancing mix of Volkswagen Financial Services are unsecured capital market issues, deposits from the direct banking business and ABS. The funding volume generated worldwide through unsecured capital market instruments amounted to 27.6 billion euros (US$30.13 billion) in 2016 and thus contributed about 16% towards the refinancing of Volkswagen Financial Services.

China is one of the drivers of the global growth of the company. It previously tapped the renminbi ABS market in November 2016 when it raised 3.65 billion yuan in two tranches, backed by vehicle financing contracts from Volkswagen Finance (China).

The order book in that deal was fully covered during the book building process with orders coming from both Chinese and global investors. Tranche A of the deal amounted to 3.5 billion yuan was priced at a fixed interest rate of 3.50%, while Tranche B amounted to 150 million yuan at 4%.

ABS are used by 14 auto finance companies and banks as funding avenue in China as at end-2016, with total issuances surging 84% to 58.7 billion yuan, compared with 31.9 billion yuan in 2015.

Fitch Ratings expects the auto loan ABS sector to continue expanding in 2017, with more new entrants to the market.