Last year, the SME bond market showed a stabilization and professionalization, which gives hope for a better future for the segment. With the issuance of 20 mini-bonds ─ mainly marked by issuers from the real estate sector ─ the market showed visible signs of recovery. And even in the first few weeks of 2018, three real estate companies have so far ventured into the market with Accentro, REA and FCR by means of private placements or public offerings.
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Transparency as the key to trust
Not all of them, but the majority of issuers in recent months have understood that professional structures have become indispensable for gaining investor confidence and thus for the success of bond issues. The choice of the stock market segment plays a rather minor role and is of primary importance for the tradability of the bond as well as for reputation and marketing aspects. Instead, the commitment to higher transparency standards and an investor-friendly information policy is nowadays a must in order to ensure the success of the placement.
“Trend towards voluntary commitment ─ stock market segment secondary”
Examples include issues such as those of Euroboden GmbH, who voluntarily included transparency obligations in their bond terms and conditions in their most recent bond issue in 2017, which go well beyond the disclosure requirements of the stock exchange and are even punished with a coupon increase in the event of non-compliance. Such commitments are well received by investors. The issue with an exchange offer for existing creditors recorded an above-average conversion ratio of over 80% and was closed prematurely.
Own issues rarely successful despite industry bonus
In spite of the lessons learned from the 2015/16 mini-bond crisis, companies with a low level of awareness often venture into the bond market with their own issues, i. e. without the professional support of a bank and without communication specialists. They must determine that it is not sufficient for a successful marketing to play the current industry bonus of the real estate enterprise for a successful marketing. Private investors as well as institutional investors have learned from this and avoid issues without a conclusive "investment case". In 2017, for example, around ten companies were unable to place their own issues on the market or were unable to do so in full.
Especially for newcomers to the bond market, it pays off to prepare the ground for a trusting relationship with the bond creditors by means of IR support before and during the issuing process. Companies can gain significant advantages through well-founded and objective capital market communication, for example through lower coupons or stable price developments. In addition to high-quality communication work, the continuous and timely provision of information is of fundamental importance.
Eleven out of twelve refinancing transactions in 2017 with coupon reduction
The times when issuers (depending on the stock market segment) partially only had to give account for their operations once a year ─ with a delay of six months ─ are over. A continuous communication with the capital market, which goes beyond the usual follow-up obligations, is now demanded by most investors. For companies intending to finance themselves through the bond market in the future, it is therefore profitable to maintain regular and conscientious contact with their bond creditors. For example, the issuers were able to reduce their annual coupon by an average of 1.6 percentage points in eleven of the twelve refinancing transactions carried out in 2017, thus significantly reducing their cost of capital. All in all, the thinned-out SME bond market continues to have a number of exemplary issuers that are successful in the market over the long term.
Lessons learned
The majority of younger issuers and market participants have learned lessons from the crisis years in the SME bond market. The promising start to the year 2018 with three issues will encourage the segment to slowly but surely recover. Adjusted for companies that abused the confidence of investors with their bold marketing promises and poorly-founded information under the term "German Mittelstand", the players in the SME bond market make use of factual, open and honest communication and thus secure the raison d' être and the good prospects for the future in this segment.
This column of the IR. on consultant Anna-Lena Mayer was published in the Anleihen-Finder Newsletter 01/18 (German only).
