There is an increasing desire for ratings among SMEs. The ratings of agencies on creditworthiness have for years been the prerogative of large companies in Italy above all. Partly due to a question of costs and cutting bond issues, partly due to the habit of the Italian entrepreneurial fabric to rely on the banking channel for credit.
But today the crisis has changed the cards on the table: with bank credit now dried up, SMEs are studying alternative sources of financing. There are those who choose the path of private financing. And who instead looks at the capital markets with public bond issues. Where to be successful and receive the attention of the funds it is often necessary to obtain the rating, i.e. the judgment on the reliability of the company in repaying the debt (it is not mandatory: some well-known groups have successfully followed the path of unrated issues, as has also made recently Campari).
A trend that seems to be growing in recent years not only among large companies but also among SMEs. “There is a very significant trend among European corporates in terms of access to capital markets to reduce bank exposure and diversify funding sources – confirms Guy Deslondes, Head of Heavy Industries EMEA at Standard & Poor's – It is a trend that we've been seeing for a few years now and it's accelerating now. And today it is more tangible: even SMEs which in the past have not shown much interest in ratings are gradually feeling the need to access the capital market. The situation has changed psychologically. However, we are referring to SMEs with a turnover of 300/500 million, the so-called mid market, since the minimum threshold for emissions is generally 150 million euros”.
Firstonline – Why this acceleration?
At the basis of the new needs of SMEs is the scarcity of capital in banks which is by now an irreversible and structural phenomenon. And this due to regulatory changes such as Basel III, as well as the slowdown in growth and the difficulties in accessing liquidity by banks in peripheral countries, which are currently improving. Furthermore, today investors' preferences go more to corporate risk than to the sovereign risk to which banks are assimilated.
Firstonline – Are the banks themselves pushing companies to reduce their exposure by favoring issues on the capital market?
Yes. On the other hand it is fair to expect a smaller share of bank refinancing, towards more American standards. Between 2012 and 2016 the refinancing need of corporate Europe is 8,6 trillion dollars, 85% is just bank debt refinancing. A share that will have to be reduced. In the US, 45% of funding comes from public bond issues and only 15% from banks. Not only. To these needs must be added about 1,9 trillion dollars of additional financing due to growth and investment needs.
Firstonline – In the last two months we have seen many successful operations by some big names such as Enel who have taken advantage of the easing of tensions on the spread but fewer mid-market operations, why?
The situation is currently not so simple on the capital market. The cost of funding is low, perhaps even too low compared to the underlying creditworthiness of some issuers, but also extremely volatile and unpredictable. It is difficult today to make long-term refinancing plans. Then there is the risk of overcrowding due to the issuers' desire to issue bonds quickly and because there are few windows to access the market. Issuing public bonds quickly is not so easy, especially for those who have never been on the bond market. The result is that there are a number of mid-market companies that come to us for a rating in order to try to issue a bond but never do. Other companies, on the other hand, abandon the process of obtaining a rating because market conditions have deteriorated in the meantime.
Firstonline – Why?
Today, if companies go on the market, the cost of financing is generally lower than bank credit. However, cost is not the only variable to take into consideration: going to the capital market means, for this type of reality, changing the way they operate with respect to what they were used to with the bank, with which management has to always had direct relationships. In this case, the banks have a fundamental role in making companies understand that it is necessary to diversify the sources of financing and that they must improve their communication. Often the companies that are interested in the rating are not listed companies and therefore have to start communicating differently from the past and in a more transparent and sophisticated way. The same mandate to rating agencies involves providing more and better information.
Firstonline – How long does the rating process take?
The standard timeframe is 6-7 weeks but it depends a lot on the level of preparation of the companies, such as the amount of information provided on the refinancing plan. For some companies it takes a little longer if they have to prepare new documentation.
Firstonline – Are there differences between Italy and Europe in this phenomenon?
The rating request trend is the same both in Italy and in Europe, but in Italy the materialization of the use of these ratings in bond issues is lower. For Italy in particular, we expect an acceleration of issues should the conditions for accessing the capital market improve.
