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1 Introduction M-Bonds for Mid-Sized Corporates in The Netherlands? November 2012 Rob Naber Lisette Overmars.

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Presentation on theme: "1 Introduction M-Bonds for Mid-Sized Corporates in The Netherlands? November 2012 Rob Naber Lisette Overmars."— Presentation transcript:

1 1 Introduction M-Bonds for Mid-Sized Corporates in The Netherlands? November 2012 Rob Naber Lisette Overmars

2 2 I.I NTRODUCTION II.D EBT C APITAL M ARKET D EVELOPMENTS III.F UNDING A LTERNATIVES IV.M ITTELSTAND BONDS V.S CHULDSCHEINE VI.D ISCUSSION

3 3 I. I NTRODUCTION Z ANDERS

4 4 Zanders Treasury & Finance Solutions was founded in 1994 Independently, entrepreneurial and innovative advisory firm Specialized in Treasury Management, Risk Management and Corporate Finance Corporates, Public Sector and Financial Institutions Over 150 professionals Advisory, interim, outsourcing and transactions services Located in Bussum (NL), Brussels (BE), London (UK) and Zurich (CH) Global leading advisory firm in its area of expertise “Zanders believes that finance solutions should be advised in an independent, innovative and entrepreneurial manner based on thought leadership and conforming to the constantly changing demands of the market” F IRM OVERVIEW

5 5 II. D EBT C APITAL M ARKET D EVELOPMENTS

6 6 Financing yourself in a (post) Crisis landscape? Surety of funding is lacking Renewed focus on credit risk due to economic downturn and increased sovereign risk Liquidity premiums are increasing Higher pricing and tighter borrowing covenants D EBT CAPITAL MARKET DEVELOPMENTS

7 7 Implications of the Basel III banking framework Shift of focus: from asset side to liability side Quality and size of banks’ core capital must increase, which results in higher capital reserves Banks must disclose leverage ratios as of 2013 Also capital requirements for derivatives might increase, which leads to more expensive products D EBT CAPITAL MARKET DEVELOPMENTS

8 8 Shareholders Perspective Maximizing (short term) corporate value Ownership dilution versus subordination Focus on ROE Costs of principal – agent problem Costs of financial distress Liquidity Management Secure (day to day) corporate funding Focus on sustainable balance sheet Cash flow perspective! Focus on solvency Invest in flexibility B ALANCE SHEET MANAGEMENT - CORPORATE ‘ DILEMMA ’ Shareholders’ value Liquidity Management How to deal with declining lending by banks?

9 9 III. F UNDING ALTERNATIVES

10 10 D EBT CAPITAL MARKET INSTRUMENTS

11 11 IV. M ITTELSTAND BONDS

12 12 First M-Bond issue in September 2010 in Stuttgart M-Bonds market approx. EUR 2.8 billion – 55 Bonds Issues range between the EUR 10 and 75 million (average EUR 50 million) Tenor is typically 5 years Coupon between 7-9% Denominations of M-Bonds are typically EUR 1,000. Listing on all 5 exchanges in Germany (Stuttgart, Frankfurt, Hamburg-Hanover, Dusseldorf) Credit rating by 3 German certified credit rating agencies (majority between BBB+ and BB-) M- BONDS

13 13 Mostly (>75%) privately owned companies Annual turnover between EUR 26 million and EUR 400 million Branches diverse, although concentration: Energy (mainly renewable energy) - 25% Real estate – 19% Automotive - 14% Interest coverage ratios are relatively low: < 1x - 38% 1-2x - 33% 2-3x - 24% > 3x - 5% M- BONDS - I SSUERS

14 14

15 15 N UMBER OF ISSUED M- BONDS PER M ONTH

16 16 Started with mainly retail investors Currently also institutional investors, but often for short holding period:  Saving banks  Private banks  Pension funds  Insurance companies Online Trading Platform M- BONDS - I NVESTORS

17 17 V. S CHULDSCHEINE

18 18 Schuldscheine loans are old, but recently on the rise due to declining bank lending In 2011 the Schuldscheine loan market totaled € 8 billion in volume Issues typically range from € 10 million until € 500 million German corporates typically raise larger amounts than non-German companies Flexible and can be tailor made Typically held-to-maturity products Bilateral agreement between a company and investor(s) S CHULDSCHEINE

19 19 S CHULDSCHEINE – I SSUERS German public authorities represent the largest group of borrowers issuing Schuldscheine  Federal republic of Germany  States  Municipalities Banks Medium and Large German corporates (BMW, Siemens, Deutsche Telekom) Non-German companies Typical midcap corporates have revenues in between € 500 million and € 1 billion In 2011 about 80 Schuldscheins with a total volume of € 8.6 billion were issued

20 20 S CHULDSCHEINE – I SSUERS Examples of issues in 2012: Altana AG Altana produces and develops high-quality, innovative products in the specialty chemical business Deal volume: € 150 million in two tranches with maturities of 4 and 6 years Four times subscribed, transaction placed with about 100 (savings) banks and institutional investors Allgeier Holding AG Allgeier provides a broad portfolio of IT solutions and services Deal volume: € 70 million, partly used to refinance bank lines Transaction placed with 25 investors mainly (savings) banks Wacker Neuson SE Wacker Neuson is a leading global manufacturer of light and compact equipment Deal Volume: € 120 million, more than twice oversubscribed Transaction placed with cooperative and savings banks, as well as institutional investors within and beyond Europe

21 21 S CHULDSCHEINE – I NVESTORS German and Austrian insurance companies Regional landesbanken Savings banks Typically investors have a buy and hold strategy Large network of small savings banks called ‘sparkasse’

22 22 Similarities German and NL market: – Same economic development over last 60 years – Export driven – Strong base of family-run companies (53% of GDP) 1 – Direction towards non-bank funding Investors: – Institutional investor base different (Country wide network of a very large amount of small retail savings banks (sparkasse) in Germany) – Retail investors – Supply chain investors – Less developed trading platform, but some initiatives in the Netherlands 1 Research University of Nyenrode and Accountants Baker Tilly&Berk (2011) F EASIBILITY FOR D UCTH C OMPANIES

23 23 W RAP UP AND DISCUSSION Need for alternative of bank debt for Dutch companies M-Bonds and Schuldscheine in Germany => Solution for mid-sized companies in the Netherlands? Discussion 1.Is obtaining a credit rating a pro or a con? 2.Who will be the investors in the Netherlands? 3.Can we build develop a Schuldschein or M-Bond market in The Netherlands?

24 24 The regular bond issue will take ideally 90 days 10 days for selecting bank, legal etc 40 days for the memorandum and credit research 25 days for pre-sounding / roadshows 15 days final preparation and introduction M ITTELSTAND BONDS

25 25 E.g. Dürr 7,25% offering (150m + 75m); done by Close Brothers Seydler Bank. Dürr is a car manufaturer supplier of machinery Started with preparations on Pre-sounding Memorandum ready Offering intended 13-9 till 24-9; however sold after two hours !! – 3 times more market demand than the intended 150m – Pricing started at 104, currently around 108 – Dec-10 an additional 75m was issued at 106 – Initially 61% to institutional investors, remainder retail Note; institutionals normally sell off again to retail after a few weeks/a month Info from CBSB M ITTELSTAND BONDS

26 26 E.g. Bastei Lübbe; ,75%, 30m, rating BBB by Creditreform. Done by Close Brother Seydler Bank. BL is an issuer of books Start at Memorandum ready 29-9 Roadshow/sounding 3-10/7-10 Issuance at full (in a difficult market at that time!) 72% to institutionals, remainder retail Issuance at par, current price at 106 Note; rating by Creditreform is a small company rating and not fully comparable with S&P/Moody’s Info from CBSB M ITTELSTAND BONDS

27 27 Thank you for your attention Zanders BV Brinklaan GV Bussum The Netherlands T: Lisette OvermarsRob Naber


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