European stock exchange bond platforms offer SME finance as banks pull back

European small and medium sized enterprises (SMEs) seeking alternative funding sources should consider tapping debt capital markets directly, according to a report by Bishopsfield Capital Partners.

A number of European stock exchanges have recently developed SME-targeted bond platforms in response to the lack of bank credit availability for these businesses caused by the financial crisis and new regulatory requirements imposed on banks.

The report highlights the successful launch of SME bond markets by regional German stock exchanges in the last two years. German SMEs have so far launched 50 issues raising nearly €2.7 bn via SME bond market platforms established individually by the Düsseldorf, Frankfurt, Hamburg/Hannover, Munich and Stuttgart exchanges.

The majority of these issues have been € 50m or less in size.

NYSE Euronext has also recently announced plans to promote the issuance of corporate bonds by small and medium-sized companies on constituent stock exchanges via its Alternext capital markets platform.

“Disintermediation of bank finance is an ongoing story and these initiatives are making it easier and cheaper for SMEs to issue bonds on dedicated stock exchange platforms, whilst also improving visibility and liquidity for investors,” said Arjan van Bussel, partner of Bishopsfield Capital Partners and co-author of the report.

“Debt capital markets funding is now within reach for European SMEs and should be seriously considered as part of their funding mix.”

European SMEs are historically reliant on bank lending and more vulnerable to its reduced availability, in contrast to US small corporates, which typically tap a combination of bank and capital markets debt, according to Bishopfield’s Paolo Geurtsen, co-author of the report.

“The German experience suggests SME bond markets are most likely to thrive on a national or regional basis that unites local borrowers and investors. This is reflected in distribution, where new SME bond issues in Germany are typically allocated evenly between local institutional and retail investors – facilitated by specially designed exchange infrastructure,” added Geurtsen.

Bishopsfield Capital Partners Ltd provides arranging, structuring and advisory services for European structured finance transactions and investment partnerships. Founded in 2009 and headquartered in London, the company is authorised and regulated by the Financial Services Authority.

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