Mini-bonds give good Italian SMEs easier access to credit

Tight credit for SMEs is leading some to different economic outcomes, including a bond market segment determined by issuing company size.

The current economic environment has brought SME needs into particular
focus given the tightened credit supply conditions arising from the reduced
ability and willingness of banks to provide the financing on which this sector
is particularly reliant, the European Central Bank (ECB) and the European
Commission recently said.

To address the issue, the two European institutions decided in 2008 to
establish the Survey on the Access to Finance of Small and Medium-sized
Enterprises (SAFE). The survey, which was conducted across 37 countries,
recently revealed that SMEs perceive difficulties in accessing finance differently across Europe.

With some 40% of SMEs in Cyprus seeing finance as a major difficulty; 32% in Greece; 23% in Spain and Croatia; 22% in Slovenia; 20% in Ireland, Italy and the Netherlands to just 7% in Austria or 8% in Germany and 9% in Poland, the funding gap is significant.

In Italy in recent months, a number of Italian banks and asset management companies have responded by launching a series of mini-bonds and similar initiatives to enable more SMEs to finance their growth plans.

Among them was BNP Paribas Investment Partners SGR S.p.a., the Italian branch for asset management services of the BNP Paribas Group, which recently launched Bond Italia PMI, a closed-ended mini-bond fund aimed at the country’s SMEs.

Elisa Ori (pictured), head of Institutional Business Development at BNP Paribas IP, explains although the fund will have a final maturity of seven years starting from the end of subscriptions, the average investment duration is estimated to be around four years, as portfolio building will focus on capital amortisation.

“The fund targets AUM of €150m, with a minimum subscription of €1m, is already open to subscription and will close [by] 16 October 2014. We expect
the fund to start investing from the first months of 2014,” Ori says.

With a strong presence in France and across Europe, BNP Paribas took the chance to launch in Italy a product that has already been tested in other
markets. To do this, the manager drew on the capabilities of the team that was established in 2008, following a trend that began in Germany and France.

Asked what type of firms the fund is aimed at, Ori says that BNP Investment
Partners is working on a list of names of SMEs that cannot access the
Eurobond market. “Our targets are those Italian SMEs that want to expand
abroad and have a good track record. As for now, we have selected two firms
based in northern Italy, where the majority of the country’s GDP is concentrated,” she says.

Portfolio diversification and a more convenient risk-return profile are among the advantages for investors.
“Mini-bonds are very convenient for investors who seek diversification and
an attractive risk-return profile to their investments. This asset class offers a
better risk-return profile thanks to its liquidity premium and they offer much
more interesting returns compared with similar bonds listed on the Eurobond
market,” Ori explains.

Finally, Ori stresses the importance of recognising virtuous firms and highlights that a cultural change is taking place among Italian investors. “Italian investors have their portfolios filled with BTPs (Italian government bonds) and it’s time for them to diversify if they want to return to growing and being competitive,” she concludes.

Gabriele Gori, head of corporate business development at Monte dei
Paschi di Siena (MPS), agrees that mini-bonds provide investors with the chance of diversifying their investments with good returns while time
splitting risk among a range of firms with proven management skills.

MPS has launched Minibond, the first fund in Italy to allow investors
access to bonds issued by unlisted Italian SMEs. It is a closed-ended fund
for qualified investors, which invests in debt instruments issued by Italian
SMEs and offers a maximum duration of seven years.

Gori explains that the group is is for the moment focused on Italy: “However, we are seeing increasing interest in Italian SMEs from foreign investors. For this reason we aim at favouring such capital inflows to support relevant projects,” he says.


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