Banks are key to harnessing the power of alternative finance
04 November 2015
European corporates continue to embrace alternative finance, with about one third (30%) of their funding coming from this source, according to research published today by Allen & Overy.
However, the market remains fragmented and largely domestic, requiring an industry-wide effort to embrace a uniform standard in order to harness the disparate pools of capital lying across the continent.
Commenting, Ben Fox, a partner in Allen & Overy’s finance practice said: “We feel the market is approaching a tipping point. It’s clear this part of the funding mix is here to stay, and all the components needed to create a thriving market are in place; standardised documentation and a guide to best practice for private placements have provided a foundation to help make this market more uniform. No one could expect all deals to use this format just 10 months after launch. But it’s evident that more needs to be done to educate players about these structures in order to achieve a deeper pool of capital across Europe for everyone’s benefit. Banks, with their deep-rooted relationships and huge distribution networks, and indeed law firms have a crucial role to play in bringing market participants up to speed.”
The research highlights that while three quarters (76%) of borrowers are aware of the pan-European corporate private placement market guide or standardised documentation, only a quarter have actually made use of them. From an investor perspective, standardisation has been embraced more readily with use of the guide or documentation much higher than that of the corporates (54%).
The survey, of over 360 respondents split evenly between senior finance executives at corporates and senior decision makers at investors across Europe and undertaken by YouGov*, revealed that while bank lending remains the largest source of funding for European corporates, accounting for on average 48% of all funding, almost half of corporates (48%) expect their use of alternative finance to increase over the next five years. This exceeds corporates’ expectations of increases in the use of bank lending or capital markets (both 31%).
The investor outlook supports this prediction, with over half of respondents (57%) reporting that they expect to increase provision of alternative finance to large corporates. Mid-sized corporates will benefit further still, with 63% of investors forecasting an increase in provision to these businesses.