made available through the Europe 2020 Project Bond Initiative, a joint programme by the European Commission and the European Investment Bank (EIB) designed to stimulate capital market financing of large infrastructure projects. July also saw the announcement of the first successful use of project bond credit enhancement and issue of an EIB supported project bond. The bonds formed part of the financing for the Castor underground gas storage project in Spain. The A11 road project in Belgium has also been tipped to use this EIB product. DCM SOLUTIONS FOR SMES Perhaps the most obvious DCM option for an SME is to conduct a private placement. This is an active sector in the US where investors overcome the lack of publicly available information about SMEs by investing in companies which operate in industries they know well or even operate in themselves. The appetite for private placements of SME bonds in Europe has grown as the financial crisis has continued, but lack of publicity and information relating to bonds issued by smaller, private companies has limited demand. A possible solution to this is a platform for European private placements by SMEs reported in the Netherlands in July 2013 which should offer SMEs the chance to raise their profile with potential investors. The initiative has broad support from the Dutch government and regulators as well as Dutch banks, some larger insurance companies and the big four accountancy firms. The stated aim is for the platform to extend to the UK, France and Germany and talks are already being held with insurers in those countries. It would help this type of arrangement if equal regulatory treatment of SME debt could be agreed across the EU. Although details are still being worked through, our expectation is that such a placement platform would still not reach as many investors as a traditional debt listing. In this respect, the Dutch stock exchange (NYSE Euronext) has had an exchange-regulated market since 2005, called Alternext, which is aimed at companies with market capitalisation of under EUR 1bn. There have been relatively few issues on Alternext by SMEs (the most recent being in May 2012) and, presumably with this in mind, NYSE Euronext launched EnterNext in July 2013. With its own teams and resources, EnterNext is more focused on encouraging initial equity and debt issuances by Dutch SMEs through lower cost, standardised issuance procedures.
loans into larger products. This diversifies risk and could improve marketability. An example of such bundling has been seen in Germany where the first covered bond programme was established by Commerzbank. The Commerzbank programme was established in December 2012 and is backed by loans to SMEs established or located in Germany and involved in a range of different industrial sectors. The regulatory treatment and cost saving of this instrument could lead to its replication in other European countries with attractive covered bond legislation. A product similar to a covered bond is reportedly currently being developed by banks in France with a view to easing SME funding. DCM SOLUTIONS FOR PROJECTS The development of the PEBBLE platform by ING and the Commute product by NIBC are important indicators of DCM innovation in the Netherlands. PEBBLE (which is slightly easier to say than Pan European Bank to Bond Loan Equitisation) provides standard documentation to be used by banks to diversify funding options and match investors with long-term investment needs with an investment that generates reliable, long-term cash flows. Through an issue of long-term (over 25 year) notes privately placed to institutional investors, a medium term subordinated loan and a short maturity revolving credit facility, it attempts to provide something for everyone. Sponsors obtain cheaper funding and tap a broader range of investors who could facilitate larger projects while institutional investors get access to a higher quality long-term investment backed by government cash flow in the form of availability payments with construction risk mitigated (through subordination of the loan and the pari passu nature of the revolving credit facility). It is proposed that the senior notes make up approximately 85% of the funding so DCM investors will be playing a pivotal role. PEBBLE has not caught on in the way which was envisaged when it was launched in 2012, but there remains hope that, once investors become comfortable with this initiative, it will be used extensively. The high quality of Dutch infrastructure projects means that they are well-placed to benefit if a deeper market for project bonds develops. A bond option was mooted as part of the finance package for the A1/A6 road project and it is anticipated one will be included in the financing arrangements for many of the upcoming projects in the Netherlands not least because of government support for broadening the investor base. However, there are limits to the breadth of the investor base because committed finance is required for bids on public projects and this is tricky to prove with a retail bond.
Another possible alternative is to “bundle� SME Amsterdam at Night
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