In 2019, the Minibond market confirmed the constant development shown in previous years with growth in 2019 compared to the previous year of 21,1%. Last year, 801 Minibond issues were carried out for a total value exceeding 5,5 billion euro (1,97 billion considering only the issues made by SMEs). Net inflows, after deducting capital already repaid over time, amounted to approximately 4,75 billion (1,7 billion for SMEs alone). This growth trend in emissions also continued in the first months of 2020 with a total value of approximately 50 million at the end of April, in line with the same period of 2019.
THE SUCCESS OF MINIBONDS
Year after year, the growth of the Minibond market belies the most pessimistic forecasts, linked in particular to the economic uncertainty and the fierce competition in the banking world, even more marked in these months characterized by the package of guarantees made available by the legislator. Companies issue Minibonds for various reasons, even when they have easy access to traditional bank credit at more advantageous conditions. Among the reasons (diversification of funding sources, openness to and comparison with the capital market, access to medium/long-term finance) one of the main ones is certainly the experimentation of a new product, a useful tool for managing the company and acquiring financially advanced planning methods.
Another reason, from my point of view the main one, is the will, linked to foresight, to undertake a path in the capital market such that the issue of the Minibond becomes the first in a series of operations on this market, approaching investors with a long-term perspective such as the project the entrepreneur has in mind.
TYPICAL SIZE OF COMPANIES THAT ISSUE MINIBONDS
As at 31 December 2019, 536 Italian companies had issued Minibonds since 2012. Of these, around 60% meet the size requirements set for SMEs. Looking instead at the volume of revenues of the issuing companies, this is highly variable even if we can say that most of the companies that issued Minibonds in 2019 (80 cases out of 183, equal to 44%) have a turnover between 10 and 100 million followed by the group of companies with a turnover between 100 and 500 million (about 13% of the total). As regards the sector of activity, the clear supremacy of the manufacturing sector is confirmed.
Beyond the quantitative characteristics and statistics, according to our experience it is essential for a company that wants to enter the capital market to have the following characteristics:
- Key Financials: Suitable income and financial indicators, both final and forecast.
- Industrial project: Goodness of the industrial project and Sector where the company operates of interest for the market.
- Commitment: The company must have a certain commitment to enter the capital market. The operation must not be an end in itself but must be aimed at structural growth.
- Intelligibility: Ability to present one's company in a clear, simple and comprehensive way (Financial statements reviewed by an auditing firm, Management control and interim reporting, Rating, Ability to interface with the market).
PROS AND CONS OF MINIBONDS FOR COMPANIES
One of the main advantages of the Minibond for companies, compared to other forms of financing, is represented by the possibility of obtaining an alternative and complementary source of financing to bank credit in order to access the competitive market of professional investors, in preparation for subsequent more complex operations such as for example private equity or stock market listing. This allows strengthening of the capital and financial structure of the company thanks to the possibility of accessing a source of medium/long-term financing that is flexible and tailor-made for the company. The tool also allows for the improvement of the company's standing and substantial improvement of the corporate image with positive consequences in terms of commercial and financial opportunities as well as being an excellent tool for managing the company and adopting advanced economic and financial planning methods.
Among the cons, it must be considered that it is an instrument that generally has a generally higher overall cost than the loans offered by the banking system.
FORECAST FOR THE NEXT MONTHS
As regards the evolution of the coming months, it is premature to make forecasts that will be a product of the following variables:
- impacts that the current coronavirus crisis may have on the business world;
- traditional financing capacity by firms;
- use of the huge package of guarantees envisaged by the legislator for 2020.
What we have observed in recent weeks, however, leads us to be cautiously optimistic considering that there have been several cases of companies that proceeded to issue Minibonds despite the full emergency situation.
In fact, as Banca Finint we concluded three transactions for a total amount of 26,5 million euros between February and May of this year.
What we can support, in any case, is the fundamental importance, especially at the moment, of subjects operating in the so-called private debt sector, which have always been concentrated on a careful qualitative analysis of the business of the individual industrial companies and partially free from the operational impacts at the end of the banking world (moratoria, loans up to 25.000 euros, management of any non-performing loans, etc etc)
IMPACT OF THE CORONAVIRUS ON THE INDUSTRY
The world of minibonds, and more generally of private debt, has always proved to be very close to the world of the real economy. We therefore expect, even in this particular situation, that the world of private debt can once again approach the companies most in need of liquidity to deal with the emergency linked to the Covid-19 impacts. However, it is currently difficult to understand whether in the coming months the market may suffer a mere slowdown or a setback due to the coronavirus crisis which has imposed a generalized closure on many production activities with negative effects on the economic system as a whole.
It could certainly be useful to rethink the system of guarantees implemented by the Government (Central Guarantee Fund and SACE Guarantee) given that, in addition to the banks, only a few funds have taken steps to access state guarantees, effectively limiting the rest of the sector of private debt.
All the more if we consider that many operations in this market are carried out in syndicates with traditional subjects where private debt funds act as so-called anchor investors using their specific skills to analyze the creditworthiness of specific industrial realities and identify the terms and conditions of the operation as a whole.
°°°°°°The author is the Head of the Minibond Area of Banca Finint
