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By Shavasb Bohdjalian, CEO of Eurivex
Small-to-medium-sized enterprises (SMEs) are best advised to follow the European trend of bypassing the banks in search of financing by issuing corporate bonds and then listing them on the Emerging Companies Market of the Cyprus Stock Exchange.
Despite massive injection of liquidity by the European Central Bank (ECB), banks are reluctant to lend to businesses across the EU as they rush to boost capital, lower risk and decrease their balance sheet size. But as the economy across the EU-27 weakens, and banks are not lending to cash-starved SMEs who provide employment for more than two thirds of the eurozone private sector workers, more unemployment and stagnation loom.
The ECB is widely reported to be working on a plan to force banks receiving cheap financing from the central bank to be conditional on onward lending to SMEs, possibly hooked on changes to its collateral rules – although it's unlikely to be ready soon and based on the experience in the UK, nothing dramatic should be expected.
But if government and central bank plans to target SME lending all rely on banks as the middlemen, the problem potentially festers, which is why many SMEs are sidestepping the banks and going directly to investors.
Many corporations are now chasing the trillions of euros sitting with European pension and insurance funds via targeted loan funds, bond issues and even direct business financing.
With 80% of European corporate finance still coming from direct bank lending as opposed to securities markets such as corporate bonds or private loan placements – the U.S. ratio is the opposite 20/80 – there is considerable scope to shift, according to a Reuters analysis.
Even in struggling Greece where loans are hard to find, companies are taking advantage of investor demand for high yield by issuing bonds and then listing the bonds on the stock exchange.
But if the bond market was only available for large and mostly well known companies, the record low bank interest rates combined by the pledge by central banks across the globe to maintain their expansionary policies has led to record interest for corporate bonds issued by SMEs with a proven track record and activities in promising sectors as investors search for a better return.
Since SMEs cannot afford the excessive fees charged by the global investment banks, they can raise funds direct from the public through listing the bonds on a recognised stock exchange such as Cyprus Stock Exchange, which has flexible listing rules and the listing fees are very reasonable and affordable even for really small companies.
A private company from any jurisdiction can issue and list the bonds on the ECM Market of the CSE by utilsing the services of an investment firm such as Eurivex, which acts as the Nominated Advisor guiding the company to a successful listing. The whole listing process takes less than two weeks to complete.
Once the bonds are listed, the Issuer will be able to market the bonds directly to investors and raise funds to pay off expensive bank loans or finance future expansion and growth. Companies can issue any type of bond – fixed interest, floating, zero coupon, convertible into shares and even Performance Linked Notes, whereby the proceeds of the issue is invested in a particular asset and the Net Asset Value changes based on the performance of the underlying asset for the benefit or loss of the investor.
The minimum listing value or size of the issue is EUR 200,000 but companies can issue bonds with flexible maturity – short or long term – each with their own unique ISIN (International Securities Identification Number). Once listed, the Issuer has regulatory permission to market the bonds to investors in the EU-27 and beyond and thus reach its financing targets at more affordable charges.
(Eurivex Ltd. is an EU investment firm, regulated by Cyprus Securities & Exchange Commission and approved by the Cyprus Stock Exchange to act as Nominated Advisor for listings on the ECM Market of the Cyprus Stock Exchange)
