Funding European business: Strengthening alternatives
Europe is on track to create a single private placement (PP) market, where corporates from all over the region can source alternative forms of capital from willing investors. While domestic alternative finance providers still rule the roost, an increased appetite to tap investors across borders is evident.
Challenges remain. As this year’s research shows, the private placement market is growing, albeit at varying rates across the different European markets. The need to continue to raise awareness and promote the available International Capital Market Association (ICMA) guide and standardised documentation is highlighted by this year’s research. But it’s worth it, as the appetite among both corporates to access, and investors to provide, alternative sources of finance remains as strong as in previous years, with nearly 50% of both borrowers and investors expecting to increase their use/ provision of alternative finance over the next five years.
Banks remain an integral intermediary in this financing market. By arranging loan and debt facilities for borrowers from investors, banks are adding a layer of security and certainty to a market that matches higher-risk counterparts. Banks, with their entrenched relationships and distribution networks, are also reinventing themselves to find new, less capital-intensive roles. It’s a win-win scenario that is hastening the market’s progress.
Britain’s decision to leave the European Union has added a few bumps in the road. A majority of UK borrowers say Brexit has either put their plans to raise capital from alternative sources on hold, or hindered their ability to raise funding cross-border. Conversely, Italian corporates see the schism as a chance to boost their borrowing capabilities. Next year will offer a clearer picture of whether the impending divorce will help or hinder the market’s development, and where.
German corporates, presented with an array of available borrowing options, including a vibrant Schuldschein market, are overwhelmingly likely to raise alternative funding at home. French, Italian and Benelux corporates are more adventurous, raising alternative funding from international investors based outside their home countries, eg in Germany and the UK. That suggests a single market will emerge – but that it may still take time.
Overall, the alternative finance market still remains a work in progress and this research underlines that more needs to be done to unify a promising, but still-fragmented, single European PP market.