MILAN Nov 9 Italy expects smaller companies to issue 10-12 billion euros ($13-15 billion) of corporate bonds in the next 18 months after introducing tax breaks aimed at helping them cope with a cut back in lending by banks.
A decree approved by the government in October introduced tax incentives for the so-called "mini-bonds".
This week bottle closures manufacturer Guala Closures became the first company to issue a 275 million euro seven-year bond under the new rules, with a yield of 537.5 basis points above three-month Euribor rates.
Financial sources told Reuters business information group Cerved was also mulling issuing a bond for around 300 million euros.
Stefano Firpo, an advisor to Industry Minister Corrado Passera who helped draw up the decree, estimated up to 600 companies could take advantage of the tax breaks and issue 10-12 billion euros in the next 18 months.
"For now our target is definitely medium companies. But if the first issues go well the market could open up for small companies too," he told Reuters.
The new regulations allow companies to deduct interest rates and issuance expenses from their tax bill. There are additional tax incentives if the bond is listed on the market.
The initiative is aimed at giving smaller companies an alternative financing source to banks, which have become much more selective in lending because of rising bad loans as Italy's recession bites.
Bank of Italy data showed on Thursday loans to non-financial companies fell 3.2 percent in September - the steepest decline since records began in 2001.
A Milan-based banker with knowledge of the corporate bond market said, however, it was still relatively expensive for companies to issue bonds.
"Right now I don't see much of a market for small issuers," he said. "It doesn't make much sense financially to issue less than 150-200 million euros, but to do that a company needs an EBITDA (earnings before interest, tax, depreciation and amortisation) of at least 50-100 million euros," the banker said, speaking on condition of anonymity.
($1 = 0.7857 euros) (Reporting by Giulio Piovaccari, Editing by Silvia Aloisi and mark Potter)