VW to go ahead with truck unit IPO despite trade woes, shaky markets

Frankfurt

VOLKSWAGEN AG set plans to list its heavy-truck division Traton SE in Frankfurt and Stockholm, moving forward with one of the year's largest European public offerings despite a wobbly stock market and a swirling trade war between China and the US.

"The IPO will lay the foundation for Traton's further growth by providing us with enhanced entrepreneurial flexibility and access to capital markets," VW truck chief Andreas Renschler said in a statement late on Monday. The company reaffirmed it expects the IPO to be completed "before the summer break" in August, depending on market conditions.

Traton, which sells MAN and Scania AB vehicles, could fetch an equity valuation of about 16 billion euros (S$24.68 billion), according to Jefferies estimates.

VW executives initially considered selling as much as a 25 per cent stake, though the amount might be as low as 10-15 per cent depending on demand, according to people familiar with the matter who asked not to be named. Prime Standard listing rules in Frankfurt require a free float of at least 10 per cent. VW reiterated it will retain a majority stake.

Volkswagen surprised investors last month, reviving its effort to float Traton just weeks after shelving the plan in March. The sale will mark a litmus test not only for IPO demand in a European stock market that turned in its worst month in 3-1/2 years during May but also for the ability of VW's management to push through deep structural change.

Chief executive officer Herbert Diess, who took over the job a little more than a year ago, is seeking to shake up convoluted processes that often bog down decision-making across the industrial conglomerate. He wants to give the units spanning some 300 different vehicles, 122 factories and 665,000 employees worldwide more flexibility to improve efficiency at the world's largest automaker.

Volkswagen - whose automotive brands range from the namesake VW to Audi, Porsche and Lamborghini and the SEAT and Skoda budget brands - gained 1.4 per cent to 143.55 euros at 9:25 a.m. in Frankfurt.

Others including Daimler AG and Renault SA gained after RBC analyst Joseph Spak started coverage on European automakers with VW among its top names. He said in a research note on Tuesday that the company should command higher multiples because of the earnings power of the truck unit and Porsche. Investor fears over electrification are overblown and a demand slowdown in China will be temporary, he said, though a full-blown trade war between the US and China could hurt valuations.

While the tensions between the two biggest automotive markets has dented car sales, so far truck demand has been relatively stable as fewer vehicles are exported between different regions. That could change as tariff threats, investigations and other tit-for-tat measures between the US and China start to sap economic growth rates.

There's also Brexit and side scuffles over trade between the US and Europe, with cars at the centre, and between the US and Mexico.

A successful IPO would generate funds for Traton's expansion outside of its main European market, while giving a boost to Mr Diess's broader strategy overhaul - a push that appeared in doubt with the initial decision in March to put plans for a listing on hold. BLOOMBERG