VW ‘rigged tests on 2.8m cars in Germany’

Updated 25 September 2015
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VW ‘rigged tests on 2.8m cars in Germany’

WOLFSBURG, Germany: Volkswagen rigged emission tests on about 2.8 million diesel vehicles in Germany, the country’s transport minister said, nearly six times as many as it has admitted to falsifying in the US.
His comments, pointing to cheating on a bigger scale than previously thought, deepened the crisis at the world’s largest automaker
Volkswagen has named Matthias Mueller, head of its luxury sports car brand Porsche, as its new CEO tasked with steering it out of the wreckage of a pollution test rigging scandal.
Mueller, 62, will take over immediately, replacing Martin Winterkorn who stepped down two days earlier, said the head of the supervisory board, Berthold Huber, at the car maker’s headquarters in Wolfsburg, northern Germany.
“My most pressing task will be to restore confidence in the Volkswagen Group — through an unsparing investigation and maximum transparency, but also by drawing the right lessons from the current situation,” Mueller vowed.
“Volkswagen under my leadership will make every effort to develop the most rigorous compliance and governance standards in the entire industry and to implement them.”
Huber praised Mueller as “a figure with great strategic, entrepreneurial and social skills.”
“He knows the company and its brands, will tackle his new position immediately and with full force. We explicitly appreciate his critical and constructive views.”
Shares in the German company, which had started to steady after sharp falls earlier this week, were down 4.5 percent at 1335 GMT after Bloomberg also reported that executives in Germany controlled aspects of the manipulated US tests, citing three people familiar with the US business.
Volkswagen is under heavy pressure to show it can get to grips with the biggest business-related scandal in its 78-year history.
Mueller, 62, would represent part of the fresh start that Winterkorn said was needed when he stepped down.
Volkswagen shares have plunged as much as 40 percent, wiping tens of billions of euros off its market value, since US regulators said last Friday it had admitted to programming diesel cars to detect when they were being tested and alter the running of their engines to conceal their true emissions.
The scandal keeps growing. German transport minister Alexander Dobrindt said on Thursday Volkswagen had also cheated tests in Europe, where its sales are much higher, and on Friday put the number of affected vehicles in Germany at 2.8 million.
Regulators and prosecutors across the world are investigating the scandal.
The wider car market has been rocked, with manufacturers fearing a drop in sales of diesel cars and tighter regulations, while customers and motor dealers are furious that Volkswagen has yet to say whether it will have to recall any cars.
“VW needs to be very open about what has happened, how it was possible that this could happen to make sure that this never happens again in the future,” said a leading Volkswagen shareholder, underlining the importance of the board meeting.
“These are priorities that should override all other considerations at the moment.”
The task facing Mueller, if his selection is confirmed, is huge. The company said on Tuesday 11 million vehicles worldwide were fitted with the software that allowed it to cheat US tests, while adding it was not turned on in the bulk of them.
Analysts hope that on Friday it may at last say which models and construction years are affected, and whether cars will need to be refitted.
They also expect it to announce a full investigation of the scandal, with German newspaper Handelsblatt saying it planned to hire US law firm Jones Day to lead a no holds barred inquiry, and to give the outlines of a new management structure likely to be less centralized, but with a clearer system of checks.

TOUGH TIMES AHEAD
Volkswagen has long been seen as a symbol of German industrial prowess and the auto industry is one of the country’s major employers and a key source of export revenue.
Earlier this month, Volkswagen delivered a presentation to investors at the annual Frankfurt motor show entitled “Stability in Volatile Times.” Now Chancellor Angela Merkel is urging it to act quickly to restore confidence in the Volkswagen name.

Frank Schellenberg, a taxi driver in Wolfsburg where the carmaker employs around 70,000 people, said locals felt betrayed and feared the worst.
“They have lost any contact with the real world, the customers who have been buying their cars in good faith,” he said, pointing to the firm’s 13-story administrative building. “Everyone in Wolfsburg is expecting tough times and job cuts.”
Half a dozen Greenpeace protesters were outside Volkswagen’s Wolfsburg plant on Friday, waving banners saying “No more lies!” in front of three diesel-engine VW Golf hatchbacks.
Evercore ISI analyst Arndt Ellinghorst said he would welcome the appointment of Mueller, a former head of product strategy and close to the Piech-Porsche family that controls Volkswagen.
But Bernstein’s Max Warburton questioned whether a man who has spent more than three decades at the company was the right man to signal a break with the past. He favors Herbert Diess, a former research and development chief of rival BMW who was hired to run the VW brand in December.
“VW needs to think big and bold,” Warburton said, urging the new CEO to offer to buy back and scrap almost 500,000 diesel cars sold in the US, which would cost about $6 billion, as well as suspend the 100 engineers most closely associated with the affected engines and software.
Another top Volkswagen shareholder said it would have been better for Winterkorn to sort out the crisis before handing over to a successor, pointing to how oil company BP managed its recovery from the 2010 Gulf of Mexico oil spill.
“I would have preferred Winterkorn to have stuck around for another month or so, through the worst of the storm, then the company appoint another CEO.”
Environmentalists have long complained that carmakers game the vehicle testing regime to exaggerate the fuel-efficiency and emissions readings of their vehicles.
The International Council on Clean Transportation, one of the research groups that helped uncover Volkswagen’s deception, has published new data showing carbon dioxide emissions in European road tests were on average 40 percent higher than the laboratory results advertised in car sales literature.
European politicians on Wednesday voted to speed up a tightening of testing rules.


Liquidity squeeze hits sukuk sector

Updated 56 min 33 sec ago
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Liquidity squeeze hits sukuk sector

  • US interest rate rises and the end of the Federal Reserve’s quantitative easing program have lessened dollar availability
  • Investors from developed markets are more reluctant to park their money in assets from further afield because the returns they can achieve nearer to home are increasing

BARCELONA: Shrinking liquidity as central banks rein in years of ultra-loose monetary policy is crimping both demand for sukuk as well as supply.
Last year, issuance of Islamic bonds, or sukuk, reached a record high of $95.7 billion, up from $68 billion in 2016, according to S&P Global Ratings, which forecasts 2018 issuance will total up to $80 billion.
US interest rate rises and the end of the Federal Reserve’s quantitative easing program have lessened dollar availability, while the European Central Bank’s decision to lower and then stop its own bond-buying program in December is exacerbating liquidity constraints.
“Liquidity that used to be channelled to the global sukuk market is becoming scarcer and more expensive,” said Dr. Mohamed Damak, senior director and global head of Islamic Finance (Financial Services Research) at S&P Global Ratings, who estimates Europe and the US provide 20-40 percent of sukuk investment.
“That will impact the capacity of sukuk issuers to the tap the sukuk market over the next 12 months.”
Investors from developed markets are more reluctant to park their money in assets from further afield because the returns they can achieve nearer to home are increasing in line with higher rates and a strong dollar.
“Whereas before when there was so much liquidity, investors were almost desperate in the hunt for yield and sukuk. Now, they’re a bit more discerning and spreads on emerging markets, including sukuk instruments, have started to widen,” said Khalid Howladar, managing director and founder of Dubai’s Acreditus, a boutique risk, ratings, regulatory and Islamic finance advisory practice. “You’ll see more discrimination coming into sukuk pricing.”
In the first nine months of 2018, sukuk issuance in Gulf Cooperation Council (GCC) countries totalled $26.9 billion, down from $39.8 billion in the prior-year period, according to S&P. GCC sovereign issuance fell by nearly half over the same period to $14.8 billion from $27.9 billion, although issuance by regional corporations rose 2 percent to $12.1 billion.
The decline in government sukuk issuance is partly due to the rebound in oil prices, analysts said, with crude now trading at more than $70; Gulf governments had historically funded their spending through energy receipts and conventional bank lending, with little need to issue debt, but the slump in oil prices from mid-2014 forced a rethink.
Saudi Arabia began issuing debt for the first time since the 1990s after falling into deficit and has now sold $11 billion of sukuk — $9 billion in April 2017 and $2 billion in September 2018, plus $41 billion of conventional bonds since 2016, according to Reuters. These have helped Saudi Arabia fund its budget shortfall, while the Kingdom has also spent some of its foreign reserves, which fell from 2.75 trillion riyals at 2014-end to 1.90 trillion riyals in September 2018.
Although now less of a necessity, Saudi Arabia and other Gulf governments may issue more sukuk do so in order to support their fledgling Islamic capital markets.
“Bahrain, Oman and to a lesser extent Saudi (Arabia) are still facing deficit pressures,” said Howaladar. “But nonetheless, the pressure is less and so that borrowing urgency has diminished.”
Bank lending has always dominated the market, but the private sector is increasingly keen on diversifying its funding sources so as to not be as dependent on banks, he said. “Globally, Islamic banks are growing faster than their conventional counterparts, so whether you want to do a sukuk or Sharia-compliant financing the bank market is still open,” added Howaladar. “Bond and sukuk markets get more attention, but banks are still able to offer Sharia-compliant financing for their customers.”
UAE sukuk issuance has grown in 2018, rising to $6.4 billion as of Sept. 23, versus $3.3 billion in the prior-year period, according to S&P. The country’s markets regulator this year issued new sukuk regulations that have helped bolster supply, said Raffaele Bertoni, head of fixed income investment at Kuwait-based Gulf Investment Corporation, a supranational financial institution co-owned by the six nations of the GCC.
A large part of the UAE’s 2018 issuance is from real estate companies seeking to optimize their financing structure with a better mix of sukuk and bank debt ahead of Dubai hosting the multibillion-dollar Expo 2020, he said.
“Several new real estate projects are in the last phase of completion, and sukuk represents an efficient and more convenient financing structure compared to conventional bonds or even bank loans,” Bertoni added.
Corporations that prefer sukuk funding due to religious considerations will continue to issue Sharia-compliant debt despite the growing expense, said Sharjil Ahmed, a Dubai-based Islamic finance specialist and fintech strategist.
“But other issuers who opted for sukuk because of attractive pricing may shift to wherever they can obtain cheaper funding,” he said.
As well as tightening liquidity, a lack of standardised Sharia regulations and geopolitical concerns have slowed sukuk issuance in 2018.