The SME bond market in the first half of 2020: growing number of transactions, declining placement volume

  • IR.on AG study on the SME bond market in H1 2020
  • 14 issues from 13 issuers with a placed volume of EUR 304.7 million
  • Real estate sector continues to dominate
  • Average coupon of 5.54% p.a. is up by 31 basis points on prior-year period

Cologne, 24 July 2020 – The German market for SME bonds shows a mixed picture in the first half of 2020, which was clearly influenced by the COVID-19 crisis. While the number of issues increased slightly to 14 bonds (H1 2019: eleven issues), the volume placed declined by a strong 40% to EUR 304.7 million (H1 2019: EUR 508.0 million). Compared to the EUR 455 million target volume of the bond issues, the placement ratio averaged around 67% (previous year: 93,6%). The average coupon across all transactions increased by 31 basis points to 5.54% p.a. These are the results of a review of the German SME bond market in the first six months of 2020 conducted by investor relations consultancy IR.on AG.

The real estate sector (four companies; 31% of issuers) was again the dominant sector among the 13 SME bond issuers in the period covered by the study, followed by the food and drinks sector (three issuers; 23%). Issuers came from a total of eight different sectors, which confirms the trend towards greater sector diversity.

Only four bonds (29%) were fully placed, which means that the share of fully placed issues was much lower than in the previous year (H1 2019: 64%). Contrary to the results of the past years, first-time issues (seven issues; four fully placed bonds) were more successful than follow-up issues (seven issues; no full placement) in the first half of 2020.

Frederic Hilke, consultant with IR.on AG:

“The effects of the coronavirus crisis are clearly visible also in the German market for SME bonds,” While the target volume in the first half of 2020 is only slightly below the prior year level (-16%), placement has been far less successful and the placed volume is 40% below the previous year’s level. This suggests that investors were more reluctant to invest during the crisis and selected their investments more carefully. This may also be attributable to the fact that nine of the 14 bonds were self-issued and thus lacked access to the investor base of an issuing bank.”

In terms of volume, most of the transactions were in the range of up to EUR 50 million (ten bonds; 71%). Three issues generated EUR 50 million; only one EUR 100 million bond (momox GmbH) was issued. Four transactions thus account for 82% of the volume placed.

The maturities of the SME bonds issued in the first six months of 2020 range from two to six years, with five-year maturities still the most common (ten bonds, 71%). Overall, the market was solid and no SME bond defaulted.

Catch-up effects possible in H2 2020

At the beginning of 2020, IR.on AG asked nine issuing banks that are active in the SME segment for their forecast for the current year 2020. The issuing houses had projected an average of 23 issues for the year as a whole. Their forecasts were thus more optimistic than at the beginning of 2019 (21 expected issues), but more cautious compared to the actual level reached in 2019 (40 issues). At the time, the dramatic coronavirus crisis was not yet foreseeable. The number of issues currently underway and the feedback received from market participants suggest, however, that the total number of issues at the end of the year may again exceed the forecast.

All of the issuing banks surveyed at the beginning of the year expected coupons to stagnate; in fact, compared to the first half of 2019, they rose by 31 basis points to an average of 5.54% p.a. The issuing banks have so far been right in assuming that the real estate sector will continue to dominate the market.

IR.score: Stock exchange listing and issuing experience make themselves felt
Frederic Hilke comments with regard to the ongoing investigation of the issuers' communication:

“In the first half of 2020, we again analyzed the IR websites of the 13 issuers with regard to fundamental IR information and gave them a transparency score (IR.score). Our analysis once again showed that investor communication by listed companies and follow-up issuers generally meets the minimum requirements. By contrast, first-time issuers often fail to meet the IR standards. Overall, however, the average IR.score has deteriorated compared with the same period of the previous year. This is not least due to the fact that two issuers failed to provide information for investors on their websites.”

A summary of the survey is available HERE for free (German only).

About IR.on AG

IR.on AG is an independent consulting firm for investor relations and financial communications. The agency assists companies of all sizes in the development of investor relations strategies, day-to-day IR activities, as an interim IR manager, in capital market transactions and special situations such as crises or restructuring exercises, as well as press relations with the financial and business media.

Headquartered in Cologne and Frankfurt am Main, the owner-managed company was established in 2000. The consultants at IR.on AG combine experience from more than 300 communication projects, over 200 annual and quarterly reports and around 100 capital market transactions including 30 SME bond issues.

IR.on Aktiengesellschaft
Frederic Hilke
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