Volkswagen next Wednesday, will begin selling $150 million in bonds on the Luxembourg Stock Exchange to help finance the German automaker's plant now being completed in Westmoreland County, Pa.
Ironically, the bonds will not be sold to U.S. citizens or U.S. residents. But they will be sold for U.S. dollars in units of $1,000 and $10,000 and pay 7.75 per cent interest also in U.S. currency.
The move means that the U.S. manufacturing subsidiary almost certainly will not be selling any common shares to support the Pennsylvania auto assembly plant.
Such a sale of common stock has been supported by Volkswagen Manufacturing Corp. of America executives and James McLernon, president and chief executive officer of the subsidiary.
According to the trade newspaper Automotive News, the reason the bonds will not be sold to Americans is a simple one: taxes. Certain tax laws would make the bonds affect VW's earnings if U.S. citizens or residents purchased them, according to an unnamed VW executive quoted by the publication.
The mechanism for the sale of the bonds is a subsidiary named Volkswagen Overseas Finance NV. Volkswagenwerk A.G., the prime corporate enterprise headquartered in Wolfsburg, Germany, will guarantee the debt.
Peat Marwick, Mitchell and Co., one of the "Big 8" American acounting firms is the outside auditor for the offering. That is expected to ease the purchase and redemption of the bonds in U.S. dollars as well as the application of money to the U.S. operation.