Corporate funding opportunity in private placement markets
by Bija Knowles
A European Commission study, produced with the Boston Consulting Group (BCG) and Linklaters, shows that private placement of debt instruments with institutional investors could play a greater role in financing medium-sized companies in future. It also highlights a considerable growth potential for private placements in the EU due to new domestic markets and increased cross-border activities. Some of the key findings from the report include:
- Europe's private placement (PP) markets have become increasingly relevant in recent years for companies seeking funding, with the German Schuldschein market and the French Euro-PP market being the two dominant markets.
- The study notes that the German Schuldschein market has grown significantly over the past 10 years, from a total issuance volume of €1.2 billion and less than 20 known deals in 2006, to €25 billion in 2016 and about 120 known deals. Forecasts for 2017 range from €20 biillion to €25 billion total issuance volume.
- The French Euro-PP market is the second largest private placement market in Europe despite only having been established in 2012. It is, nonetheless, much smaller than the German Schuldschein market with total issuance volume €4.5 billion in 2016 and 68 deals.
- Private placements offer companies an opportunity to diversity their funding. They enable companies to choose the most appropriate funding source in terms of maturity, minimum issuance size and rating requirements.
- The risk profile of private placement instruments is not substantially different from senior unsecured debt. And for the German and French markets, there have been very few cases of default so far – although both markets, particularly the French, which was created only in 2012, need to prove their long-term stability.
- Both the German and French markets are expected to grow in future, due to various factors including increased awareness of the markets attracting more issuers and investors, domestically and internationally, particularly investors from Asia-Pacific, while a change in the ECB bond purchase programme might influence the Schuldschein market, especially for large issuers.
- The study identifies potential issuers of private placements as medium-sized companies with revenues between €75 million to €5 billion.
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