Trends in corporate bond markets
Corporate bond markets have been expanding at high rate in the aftermath of the financial crisis. As other sources of finance dried up in some countries, especially bank lending, corporations increasingly turned to debt capital markets, further encouraged by the low interest rate environment. On the demand side, investors’ interest in corporate bonds has increased, particularly as a result of low government yields.
According to the Bank for International Settlements, in 2012, bonds by non-financial corporations represented 12% of the debt securities market, following government bonds (49%) and financial-corporation bonds (39%). The US corporate bond market is the most developed and liquid market in the world: in 2012, US residents accounted for 61% of the global bond securities issuance, followed by Japan (11% ) and the euro area, which accounts for only 10% of the global market (Figure 4.1).
Figure 4.1. Global outstanding corporate bonds, by issuers' country of residence, June 2012
StatUnfc em2 http://dx.doi.org/10.1787/888933292169
Source: BIS (2012).
Nevertheless, in Europe, where debt securities have historically represented a minor share of non-financial corporations’ liabilities, issuance peaked up in 2102, after the 2009 all-time-high and the substantial drop in 2011, as a consequence of the negative market sentiment in general (Figure 4.2). Deutsche Bank (2013), however, highlights the diversified country-level trends underlying this general picture. In particular, changes in corporate bonds issuance appear to be correlated with conditions in bank lending. That is, there is evidence that bond issuance increased especially in peripheral euro area economies, where access to bank loans had become particularly difficult.
In the UK, corporate bond issuance in 2012 was the highest since 2003, when the Bank of England records began, amounting to GBP 40.5 billion. Over 2011-12, the increase in bond
Figure 4.2. Net issuance of long-term non-financial corporate debt securities in Europe
Source: Deutsche Bank (2013).
issuance for all enterprises more than offset the decrease in bank lending, which suggests the corporate sector is changing the composition of debt, rather than clearly deleveraging (RBS, 2013).
The above trends basically refer to issuance by large corporations, which, as mentioned above, dominate this market. Nevertheless, in some countries, innovations in the market for SME corporate bonds have taken place in recent years, which are expected to result in greater attractiveness for and access by SMEs, or mid-cap firms.
In 2010, the London Stock Exchange’s Electronic Order Book for Retail Bonds (ORB) was launched. This is an electronic platform for private investors trading fixed income securities, which provides continuous, transparent, two-way tradable prices for gilts (i.e. British government bonds) and retail-size corporate bonds on-exchange for the first time. It thus offers an easier and more transparent mechanism for issuers to raise debt capital from a retail audience, in deal size as low as GBP 100. This initiative is modelled on Borsa Italiana’s successful MOT market, which was launched in 1994 and has evolved in Europe’s largest retail fixed income market, with EUR 230 billion worth of trading in 2009. This model is expected to favour small investors as well as to provide more opportunities to smaller companies for raising funds through debt securities.
In Germany, in 2010, the Stuttgart Borse created a special bond platform for SMEs (Bondm), offering issues in the EUR 25-EUR 150 million range. The platform allows companies to issue bonds directly to the retail investor in the primary market, during the subscription phase, without the assistance of an underwriter, which reduces issuance costs and gives the individual investor a price advantage over the first listing. After the initial bond offering, the instrument is then traded openly on the Bondm market. As of 2012, some 25 SMEs were listed, for a combined value of assets of about EUR 1.6 billion (Hillion et al., 2012).
In France, innovative schemes have been launched to increase attractiveness of small size bonds. With the support of the French government, in the form of guarantees issued by OSEO (now bpifrance), the GIAC bond programme allows for the mutual issuance of bonds by SMEs and mid-caps. GIAC, a borrowing group funded in 1961 to provide financial support to French enterprises, manages a securitisation fund, which invests in small to mid-sized bonds (EUR 500 000-2.5 million) and gets financing on the market by issuing itself obligations of different types, acquired by institutional investors. Also, the fund is guaranteed by a mutual fund participated by the bond issuing companies, whose contribution amounts to 7% of the requested funding. These companies are selected in accordance with specific criteria, such as a solid financial position, good profitability and development plans. In 2013, EUR 80 million were raised by this innovative scheme.2
In 2013, a new debt fund was launched in France to stimulate the development of the SME bond market. “Fond NOVO” is a EUR 1 billion fund subscribed by Caisse des depots and 17 large insurance companies. The fund will have a 10 year life and is expected to finance 30-40 enterprises, contributing with EUR 10 million-50 million lending for their development.
In 2013, NYSE Euronext has increased efforts to stimulate bond issues among smaller companies through its new EnterNext subsidiary. This is dedicated to companies that have a capitalisation of under EUR 1 billion and, as of May 2013, it covered about 750 SMEs listed on NYSE Euronext’s European markets in Belgium, the Netherlands, Portugal and France.