In recent days, Economy Minister Pier Carlo Padoan has asked for common rules in Europe also on mini-bonds. "The EU can work by favoring sources of financing for SMEs, passing through common rules, for example on mini-bonds", he said speaking at the Eurofi conference in Milan. Many expectations are placed on the bonds designed specifically for the financing of small and medium-sized enterprises not listed on the stock exchange and they are one of the instruments that the minister wants to exploit in the context of the growth strategy that the government has presented to Ecofin. Already from the stage of the Ambrosetti Forum, the minister had brought the spotlight back on these instruments which "do not earn the front pages of the newspapers - he said - but the first results of the mini-bonds bode well".
At the end of August, the MEF released an initial report: 26 SMEs issued mini-bonds for the first time for a value of around 1 billion with issues between 5 and 200 million. The market expects these numbers to rise quickly to 5 billion by Christmas. “The mini-bond market has basically started. The awareness was acquired by the various interlocutors that this can be a tool that can help SMEs grow as an alternative tool to banks", he explains John Scrofani, responsible for the Minibond Italia Project Fund of Zenit Sgr, Fund specialized in this type of instrument.
FIRSTonline – What's the situation with mini-bonds on the fund front right now?
Today there are several funds. A dozen have already started with a first tranche of funding, these are important resources, 1 billion euros over just over a year. It indicates that investors are moving: the main ones are banks and insurance companies but also social security funds. Institutional and qualified investors, including natural persons, can invest in minibond funds, but not retail. And the resources are destined to increase: the collection of 1 billion euro represents the first closing carried out but the targets set by the funds already launched are higher. In addition, there are 30 other funds that are considering starting with mini-bonds.
FIRSTonline – What are the difficulties of the mini-bond market at the moment?
It is an illiquid market, for investors it means locking up resources for a certain number of years. Our fund provides for semi-annual coupons and then, as the bonds reach their liquidity maturity, the relative share is paid to investors. The duration of the mini-bonds varies, generally ranging from about 3 to 7 years, with an average time horizon of five years. Our fund has a duration of approximately 6 years. At present, mini-bond funds tend today to remain invested in the issues in which they invest, in the coming years it is possible that the market will develop and it will be possible to carry out buying and selling operations between the funds themselves while in the future it will be possible to move towards greater standardization of contracts and their buying and selling.
FIRSTonline – What could be improved in the current regulatory framework?
A lot has already been done. Civil and fiscal constraints have been eliminated, there has been significant interest from the CDP and the Guarantee Fund. There is a lot of talk about it and they are in the pipeline as a tool to relaunch Europe and also Italy. Of course, it is possible to intervene on the taxation of investors and solutions could be found to stimulate institutional investors to invest. For example, insurance companies can invest up to 3% of their technical reserves. Something similar could be thought of for pension funds. To help liquidity, securitizations are also an important tool to encourage the number of mini-bond issues because mini-bonds can be issued that have illiquid bank assets (financing to businesses) as their underlying assets. This would give banks the opportunity to get rid of illiquid assets and consequently increase loans to companies but also, on the other hand, to increase the issuance of mini-bonds.
FIRST online - Is Mario Draghi's plan on ABS as head of the ECB therefore also positive for mini-bonds?
Yes, Draghi's latest initiatives can have a positive effect on the mini-bond market, helping it become more liquid, favoring more issues.
FIRST online - One of the hopes is the harmonization of the rules on mini-bonds at European level. What is the situation of this market in Europe?
Diversified. The closest experience is the German one. It is a larger market that started in 2010. The main differences are that there are three reference segments with strong territorial roots with funds that invest only in certain areas, while in Italy there is only one segment which is ExtraMot. Furthermore, the rating is mandatory while returns are higher than ours, by an average of one percentage point.
FIRSTonline – Starting from a better creditworthiness of the country system and with lower interest rates for corporate financing by banks than in Italy, how can it be that the rates of mini-bonds in Germany are higher?
Mini-bonds are tools for SMEs which in Italy often represent the excellence of the production system and which therefore manage to earn lower rates than German SMEs.
FIRSTonline – Among the Government's proposals there is also the establishment of a network specialized in providing services to businesses to help them bear administrative, legal and tax burdens. What do you think?
Surely any incentive or tool that also acts on the side of the issuers is useful. We are talking about medium-small companies and a path in which there is a need for tools, due diligence, advisors. Then there are costs not only on the issuance but also subsequent recurring costs. For example, the rating is not required by law but our fund has established as a constraint to invest only in mini-bonds that have ratings.
FIRSTonline – What is the cross-section of companies that issue mini-bonds?
A bit of everything is coming to us, from fashion to production to energy. Diverse company profiles. We have not set ourselves a limit of sectors, we look at the sustainability of growth, whether there is a credible strategy with growth or internationalization prospects. Management is also fundamental in this type of company. Start-ups, on the other hand, are not a target for mini-bonds, while there are also established companies on the market with a history of 20-30 years. In any case, it is not a tool for restructuring debt or making up for a commercial situation that does not close or for a lack of working capital.
FIRSTonline – How does your fund invest?
We have no geographical or, as mentioned, industry constraints. However, we invest no more than 25% in any single sub-fund, no more than 7% in any single issue and no more than 10% in any single issuer. Compared to other funds, we don't buy all the debt issued by an issuer. If a company issues ten million euros of bonds, we only buy part of it. We don't want to act as a single interlocutor towards the customer, we want to diversify the portfolio. Our logic is that of the pure investor.
FIRSTonline – What is the attraction of this type of investment?
Interest rates help because the yields of government and corporate bonds are now at minimum terms and the mini-bonds allow you to invest in an asset class that can guarantee 2-3 times the yield of the BTP. We are calibrated around 6% as the gross target of our fund, from which management fees and taxes are deducted.
FIRSTonline – Fees will be higher than the average bond fund I think.
Yes, because all the additional work of accurate due diligence is required. We have two investment shares. On class A, where the minimum investment is 2,5 million euro, the commission is 0,8%. On class B where the minimum investment is 250 thousand euros, the commission is 1,2%
FIRST online - Where are you in the fundraising and investing process?
We are completing the fundraising and by the end of September we will form the Board of Directors for the first closing on the collection of resources which will close above 30 million euros. We still have to start the investment process. We are receiving many requests and I think that once we have closed the collection, the reports will increase. We don't actively carry out investment scouting, the companies offer themselves, or the reports arrive through the advisor we rely on and through the investors themselves. By the end of the year I think we will have invested in 2-3 companies.
