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Greece eyes SME minibonds to bypass bank lending
July 25, 2014 / 4:46 PM / in 3 years

Greece eyes SME minibonds to bypass bank lending

* Athens Exchange prepares for first batch of minibonds

* New platform raises hopes for way to bypass bank lending

By Christopher Whittall and Anil Mayre

LONDON, July 25 (IFR) - The first batch of issuance under a “minibond” programme that the Athens Exchange Group (Athex) has been promoting to finance Greek SMEs is set for launch after the summer break.

Greece’s economic recovery is closely linked with the health of its SMEs, which make up 99.9% of its companies and employ 85% of the workforce compared with an EU-wide average of 66.4%, according to PwC. But these firms have increasingly found themselves starved of financing from the country’s creaking banks.

Athex is keeping its project to boost SME lending simple to start with, allowing companies to issue 5m of bonds through the ENA STEP (support the entrepreneur) part of its alternative market listings.

“We are already working with issuers, both listed and non-listed, and expect the first issues in September,” said Nikolaos Porfyris, deputy COO of Athex.

“SMEs are one of the most important sources of growth for the economy but there is funding gap of around 12bn-16bn. There are some companies that are in good shape, despite the macro situation, that want to expand but lending is difficult due to the bank deleveraging - and expensive,” said Porfyris.

Greek SMEs have been hard hit by the lending drought due to an unprecedented 30% non-performing loan ratio in the country’s banking system, which accounts for over 95% of SME lending in the country, according to a recent Oliver Wyman report.

The ECB’s Survey on Access to Finance of Small and Medium-Sized Enterprises canvassed 500 Greek SMEs between October 2013 and April 2014, showing 42% expressing access to finance as their most pressing concern.

A fifth of firms admitted they had given up even applying for a loan, while only 33% of applications were successful (often with reduced loan amounts) versus 61% in Spain and 57% in Italy.

A separate survey from the National Bank of Greece found that 9% of healthy Greek SMEs now had liquidity problems compared to only 3% in 2012.

“Traditionally, Greek SMEs have had a major dependence on bank financing. A number of Greek banks have large NPL portfolios at the moment and coupled with regulatory pressures (Basel III), such banks have found it increasingly difficult to lend to SMEs. There is a clear need for alternative sources of funding and bond market financing has to be the way forward as Greek SMEs are really cash-strapped,” said Ranajoy Basu, a partner at Reed Smith.

“For those entities not able to enter the public debt capital markets, the private placement market has proved to be a useful alternative source of capital,” said Basu.

MINIBOND PLAN

Athex sees the minibond as a route to easing the funding drought, and is building infrastructure to facilitate that.

“We want more companies to finance projects with small amounts of capital, and so we have created a centralised bookbuilding process for those that want to raise up to 5m,” said Porfyris.

Athex runs the book by accepting offers from all clients through its members, which include a mix of private and professional investors.

The sums are small to start with but could grow through funds pooling securities, which in turn can attract more capital investment, Porfyris said.

This could speed up the channelling of funds to SMEs without waiting for much more deep-set structural problems to be resolved.

Greece could look to the Italian minibond market for guidance, where larger bonds sales have taken place.

Minibonds in Italy have also used securitisation technology, with eight water utilities pooling 150m of their minibonds in a special purpose vehicle.

But despite the potential, some cast doubt on the Athex plan because SMEs inexperienced in capital market funding will still need expert advice.

“It’s a solution, but it’s not free of bank involvement as to get there you still have to engage the services of the Greek banks,” said Nikos Salakas, a partner at law firm Koutalidis. (Reporting by Chris Whittall and Anil Mayre, editing by Matthew Davies)

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