Volkswagen has called on the European Central Bank to speed up its plans to buy commercial paper directly from the world’s largest companies to help them ride out the coronavirus crisis.
The German group told the Financial Times that the ECB should send “clear signals” and purchase the short-term debt, which often matures in as little as six or nine months, “as soon as possible”. VW is one of Europe’s most regular corporate issuers of commercial paper.
“There’s a lot of pressure on the incoming money flow,” said chief financial officer Frank Witter. The world’s largest carmaker closed its European plants last week, while the car industry outside China has come to an almost complete standstill. “We have different diversified funding sources available, but not all of them are as liquid as they were,” he added.
The call comes after the ECB announced a plan to spend up to €750bn in extra asset purchases to contain the financial fallout from the coronavirus pandemic.
Volkswagen has the capacity to issue up to €15bn of this debt under its main funding programme, with another €5bn earmarked for short-term debt in a separate market in Belgium. The group’s ringfenced financial services arm has an additional commercial paper programme with a €2.5bn limit.
Large corporations account for a fraction of the €1.4tn eurozone commercial paper market, which is usually used by banks, but access to such debt can be vital for companies looking to plug short-term liquidity gaps, a common consequence of the disruption caused by coronavirus.
Volkswagen, which has almost 500,000 staff in Europe, has already put tens of thousands of German workers on shorter hours, leaning on the government in Berlin to fill the gap in salaries.
The group has also been in discussions with the ECB to discuss access to the liquidity it would need to see it through the global pandemic, via the central bank’s expanded refinancing operations, which in effect pay banks to borrow money by offering loans at interest rates as low as minus 0.75 per cent. VW’s financial arm is a bank and qualifies for these cheap loans.
Last week, as it announced a €750bn package of extra asset purchases to tackle the economic effects of Covid-19, the ECB pledged to make non-financial commercial paper “eligible for purchase” under its quantitative easing programme.
While the central bank started buying sovereign and corporate bonds under the programme on Thursday, it is still ironing out the technical and legal details for buying non-financial commercial paper and has yet to put that part of the scheme into effect.
“Providing funding opportunities is something essential in this crisis,” Mr Witter said. “The earlier, the better.”
Lacking this avenue for funding, companies that typically rely on commercial paper could draw down on credit lines with banks, a form of standby financing that businesses can turn to at times of stress.
Mr Witter said that Volkswagen, which has yet to tap credit lines with banks in excess of €20bn, considered that facility “a back-up” for when capital markets are shut.
US rivals GM and Ford both drew down about $16bn from their respective credit facilities to shore up their finances in the face of supply-chain disruption and factory closures.
The US Federal Reserve announced last week that it too would begin buying commercial paper, restarting a facility last invoked during the 2008 financial crisis.
Mr Witter’s comments were made just a few weeks after VW reported a 17 per cent rise in pre-tax earnings in 2019 to €18.4bn with net cash flows of almost €11bn in its automotive division.
However, the executive said that while the group had not decided to scrap its substantially-increased dividend of €6.50 per share, VW would “have to monitor the situation, as developments are progressing”.
Additional reporting by Martin Arnold
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