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Trend towards More Bonds in Corporate Financing

Published: August 3, 2011; 15:32 · (Vindobona)

Companies will increasingly rely on the capital market as bank loans are becoming more expensive due to Basel III and stricter liquidity requirements.

Trend towards More Bonds in Corporate Financing / Picture: © Calculation

Corporate financing has undergone changes since the start of the economic and financial crisis. The future will bring increasing importance of the capital market, after companies were mainly financed through bank loans in the past. “Stricter Basel III capital requirements and new liquidity rules for banks will result in higher cost of loans”, explained Karl Sevelda, Deputy CEO of RBI and responsible for the corporate business.

European companies have increasingly relied on the capital market and less on bank loans since the bankruptcy of Lehman Brothers. A similar trend can be observed in Austria. According to data of RBI, corporate bonds with a total volume of € 4.59bn were issued in 2009 – a new record as many companies wanted to benefit from the low interest rate level. In 2010, the volume dropped to € 2.88bn, only to grow again in the current year. In the first six months of 2011, the volume amounted to € 2.92bn already.

“We want to make more companies use the capital market”, said Sevelda. His long-term target is a balanced ratio of 50:50 between capital market and loan financing. “Due to the large number of small and medium-sized enterprises in Austria we will never reach 80% capital market financing.” However, he expects a doubling of the capital market’s share in Austria by 31 December 2018, the end of the transitional period for Basel III.

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