* U.S. private placements by French firms 3.1 bln euros
* Rise in issuance a sign of banks' lending retreat
* French private debt market still in infancy
* Advantages include lengthy terms, lower rates
By Christian Plumb
PARIS, Nov 12 Listed on the French stock market
based in a suburb of Paris, mailroom equipment maker Neopost
is an unlikely trailblazer in international debt
But by tapping the U.S. private debt market, it has shown
the way for a growing band of small and medium-sized French
companies that need dollars to do business in the United States.
France's own banks are increasingly unwilling or unable to
provide such funding and are cutting back lending across the
board in austere times.
"It's become more and more difficult to obtain dollars
through the traditional banks," Neopost Chief Financial Officer
Jean-Francois Labadie said in an interview.
"As a consequence, many French companies are starting to
discover the American private placement, which remains a very
compelling source of dollar financing."
Such placements by French companies hit a record $3.1
billion in the first half of the year, up from $825 million for
all of 2011, according to Thomson Reuters data. That is the
highest of any European country aside from the UK.
Companies with global operations, like Neopost, are looking
for places to borrow dollars to fund activities such as leasing.
Borrowers ranging from supermarket chain Auchan to
industrial gases group Air Liquide also seized the
opportunity to borrow hundreds of millions of dollars at low
rates from long-term investors: mostly insurers struggling to
sqeeze adequate returns from traditional bonds.
"You can spread out the maturities much more significantly
than with a classic revolving credit line, which typically has a
five-year term," Labadie said, adding that 7-to-10 year terms
The private placement rush is in part a reflection of French
banks' own difficulties in securing dollar funding since late
last year and is part of a wider trend of European borrowers
cutting their dependence on lending from banks trying to shrink
their balance sheets.
DRIVE TO DIVERSIFY
French demand has been a big chunk of a wider spike in
European corporate use of U.S. private placements, which stands
at 36 percent of a market valued at $48.2 billion so far this
"The diversification away from relying too heavily on bank
lending has been a driver of issuance in this market," said
Angus Whelchel, managing director in private capital markets at
Barclays Capital, adding that some of the deals stem from last
autumn, when a crisis of confidence at French banks convinced
some borrowers they should look for funding elsewhere.
"After the crisis, issuers were much more conscious of how
they reviewed financing plans," he said. "At that point a lot of
issuers realised they can't be so reliant on their banking group
for all debt-related financing needs."
Private placements are also a godsend for companies that
lack the credit ratings generally required to sell bonds, though
that formerly stringent requirement has been loosened in some
cases as the bond market has heated up in recent months.
French companies borrowing in the first half paid interest
rates from 2.65 percent to 5.5 percent.
Their thrust into the U.S. private placement market is also
a product of the lack of a strong French version of the U.S.
144a market and German Schuldschein equivalent, which allow
unregistered securities to be sold to institutional investors.
Domestic banks and insurers have made moves to create such a
market in recent months - insurer AXA, for example,
struck lending joint ventures with banks Societe Generale
and Credit Agricole.
BNP Paribas also recently announced that it was
raising a fund to provide loans to small and medium-sized
enterprises (SMEs), but in France such efforts remain embryonic.
Most of all, the U.S. private placement boom is emblematic
of a seismic shift in Europe, where SMEs have always been able
to rely on their banks for credit, but fear they will not be
able to for much longer.
"The banks in Europe are going to shrink," said one U.S.
private placement market source, speaking on condition of
anonymity. "It's going to happen because there's not enough
equity for all of them to become adquately capitalised enough
and compliant with Basel III (bank capital rules)."
While the vast majority of French businesses still finance
themselves through bank loans, in stark contrast to the United
States, where most financing happens through bonds and other
market sources, the landscape is shifting.
By this past summer 36 percent of French corporates were
getting their funding from market sources, up from 32 percent
the summer before and 27 percent in 2008, according to a recent
Deutsche Bank research report. Market funding for French
companies soared 15.5 percent in August, while bank debt edged
up 0.9 percent, according to the same report.
U.S. private placements by French companies such as Faiveley
Transport and Essilor International in the
first half also reflected how market turmoil made it hard to
access the conventional bond market. Since the bond market has
moved into overdrive this autumn, the pace of private placements
could ease in the second half, but it's likely to remain strong
in the years go come.
"It's becoming a mainstream alternative as opposed to a
little niche product," Whelchel said. "The liquidity in the
market is tremendous right now."