Germany's stock exchange Deutsche Börse is seeing an increased volume of corporate bond issuance by local companies, even as IPO activity is down. In response, it has launched bond issuance standards to offer similar transparency as equity placements.
Germany’s stock exchange Deutsche Börse is seeing an increased volume of corporate bond issuance by local companies, even as IPO activity is down. In response, it has launched bond issuance standards to offer similar transparency as equity placements.
In the first half of the year, the capital raised by German companies through bond issues has, for the first time in the history of the country, surpassed bank deposits.
Alexander Höptner, head of markets services at Deutsche Börse, said last year, much of the demand for bond placements came from retail and smaller companies, such as small family offices.
This led the German stock exchange to launch a new entry standard for bonds, aiming to provide the same transparency as equity raising through IPO.
“Bank credits used to be the primary way of raising capital, but increased regulation is now forcing companies to look for different ways into the market,” said Höptner.
So far, the exchange has been targeting investors with up to €100m in capital. Now, larger companies are showing increasing interest in bond issuance, including large cap firms in Germany’s DAX index.
In response, Deutsche Börse is launching a prime standard for bonds, directed at larger cap companies.
Since the launch of bond entry standards last April to the end of last year, 17 debt issuances took place, with a total issuing volume of €649m. This year to date, the number of issuances has reached 11 already and Höptner said “the pipeline looks full” for the rest of the year.
The exchange expects five to 10 more placements by the end of the year, with the target to double last year’s issuance volumes.
Höptner said Deutsche Börse was particularly attractive in comparison to other, better known placement locations, such as Luxembourg and Ireland, due to the high trading volumes.
A turnover of 50% is typical for corporate bonds, which tends to continue on a long term basis, he said. In Luxembourg, for example, there is not as much trading post placement.
Previously, investors did not expect liquidity from the corporate bond market, so trading was not particularly important. Yet now they are realising there is a liquid secondary market, that can be tapped, Höptner noted.
Following the launch of the two bond standards, Deutsche Börse intends to create a corporate bond index, which would allow to increase liquidity in the bond market and offer direct access to a full range of corporate bonds.
For now, this will target the German-speaking region, but Höptner expects to be able to cover all of Europe before long.
A similar index does already exist, but covers “a fraction of the corporate bond universe,” and there is not much demand for it, Höptner said. The new index will aim to include all the small and medium sized companies issuing bonds.