Rutbert Reisch, chief financial
What particular challenges have you faced in accessing the capital market this year?
The consequences of WorldCom's behaviour have affected all corporate borrowers. It has not been an easy time for companies that have played the game honestly, but have found themselves footing the bill as corporate spreads widened.
To cope in these market conditions, it is a matter of picking the right moment to issue debt.
We always try to borrow when we don't need the money. If we know that we are going to need funds, we try to plan six months in advance so that we can issue when market conditions are optimal.
Having said that, spreads are not the only consideration in deciding when to issue. For example, with our recent benchmark bond deal, the timing was important as we wanted to be first to take advantage of the lack of corporate supply over the summer.
If we borrow for our automotive arm, it is not because there is a need for money; we finance everything through internal cashflow and our net position is strongly positive. However, if there is an opportunity to lower the average cost of funding we take it.
The real additional demand for funds comes from sales financing where we can project how the asset side will evolve and so we can borrow ahead of time in the best market. We then hold these funds as cash and draw them down as needed.
How far have you got in reaching your funding target for this year?
We don't have a fixed target, but by and large we are almost done for the year. If VW Financial Services AG continues to grow at its current rate, the market should expect two benchmark deals from us every year. To date this year we have been in the public market with benchmark three, five and 10 year issues, and have issued in the FRN segment.
We are always active in the private placement market, where we fund at Libor plus a few basis points, and we may do further opportunistic issuance later in the year.
In addition, we would certainly consider further issuance in the ABS market, because it helps to lower the average cost of funds.
What is your debt issuance strategy over the longer term?
We will continue in the way we have so far. We have a revolving five year plan which is continuously revised. In general, we estimate our funding needs by looking at how funds from previous issues are being drawn down and at the sum of all our other funding.
We then assess our needs three to six months out and do a deal when the timing is right.
We will be doing more and more asset backed issues as we are working on improving the software systems of our issuing arms so that they can execute further ABS transactions.
Moreover, we will do our utmost to remain a solid and good credit and to be seen as such in the markets.
Are you looking to access any new markets and expand your investor base?
We are always on the prowl. We love cheap money and don't care from which market segment it originates.
What markets have offered you the most attractive funding this year?
The euro markets and North America. Lately, the Japanese market seems to be coming back again. When banks show us interesting opportunities, we take them. We are not concerned with what currency we issue in as long as you can attach a swap to eliminate currency and interest rate risk.
We have used niche markets such as Norwegian kroner and Hungarian forints. We are also active in the Czech koruna market because we own carmaker Skoda and SkoFin, its financial arm, based in the Czech Republic. We appear more active in this market because for longer term funding we have to go to the capital markets as bank borrowing tends to be on the shorter term.
If we need funds, we have to issue Eurobonds.
Volkswagen conducted a roadshow for the recent Eu1.5bn bond transaction. How important are roadshows in your debt issuance strategy and investor relations?
If you are planning a benchmark issue, it is advisable to do a roadshow if you want to optimise funding costs, even if it is not quite as important as for equity issues. We have a good rating with a stable outlook and we are a frequent borrower in the market, so everybody knows us.
Possibly, our last issue could also have been done without a roadshow. But looking to re-open the market after the summer lull, when the markets and investors were not busy, a roadshow helps - especially when the automobile cycle is being perceived as being in a recessionary phase.
Have you made any changes to accommodate investor concerns with regard to corporate governance and transparency?
We have continuously made our statements more transparent. We are doing everything that we are required to do by law, if not more. We believe the trend to more transparency will continue and we are willing to accommodate this.
If you want to be a good citizen in the capital markets you have to be transparent. After Enron, there is no way around it if you want to achieve good ratings and the trust of investors.
What factors affect your choice of lead managers for your benchmark issues?
We choose from our core banks, which were those involved in the arrangement of our Eu15bn loan facility as well as a few more banks that have given us sizeable bilateral lines in the US or eastern Europe.
We ask for bids from the big banks and within the group it is competitive bidding. We also try to rotate our business among banks.
But those banks who do not lend us their balance sheet need not apply.
Once we receive bids and compare pricing, the factors influencing our choice of lead managers are execution, quality of service, deal structuring and the overall relationship.