July 5, 2016 / 11:32 AM / 3 years ago

Volkswagen's finance arm sells Russia bond to fund local operations

A VW sign is seen outside a Volkswagen dealership in London, Britain November 5, 2015. REUTERS/Suzanne Plunkett/File photo

BERLIN (Reuters) - Volkswagen’s (VOWG_p.DE) financial services business has sold a 5 billion ruble ($78 million) bond in Russia to fund its local operations, it said on Tuesday, its first issue in the country’s battered debt market in almost two years.

Car sales in Russia, where Volkswagen (VW) last year opened a new engine plant, plunged 36 percent in 2015, in an economy hit by lower oil prices and Western sanctions over the Ukraine crisis.

Volkswagen Financial Services, which handles dealer and customer financing and the German group’s banking and leasing business, said the rouble-denominated bond placed with investors had a five-year maturity and a 9.95-percent coupon.

“Despite the tense situation in Russia and related challenges, we are firmly committed to our engagement there,” Frank Fiedler, the VW division’s finance chief, said.

Rated BBB+ by Fitch Ratings and BB+ by Standard & Poor’s, the bond is VW’s first in Russia since two separate 5 billion-rubles placements in October 2014 and its fourth bond in the country to date, a spokesman said.

The operations of Braunschweig-based Volkswagen Financial Services exclude the Scania and Porsche brands and the Porsche Holding Salzburg distributor.

Europe’s largest automaker built nearly 100,000 cars at its plant in Kaluga last year and has not scaled back operations in Russia, unlike rivals including General Motors (GM.N) which in 2015 idled an Opel factory in response to slumping demand.

“Russia has the potential to grow into one of the largest automotive markets in the world,” VW said in its 2015 annual report published in April. “The market remains of strategic importance for the VW group which is why we are working intensively there.”

Reporting by Andreas Cremer; Editing by Mark Potter

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