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Retail bonds in Europe
Small fry wanted
Aug 13th 2009
From The Economist print edition
European companies court individual bond investors
AFTER raising nearly €8 billion ($11.2 billion) in a rights issue in
June, Enel was not expected to make a quick return to the
markets. But on July 31st the Italian utility approved plans for
bond issues worth up to €10 billion. Given “huge interest” in
corporate bonds, the company should cast for more credit
whenever it can, says Luigi Ferraris, Enel’s finance chief.
Much of that interest comes from individuals. Enel’s proposed
issues will target both institutional and retail investors. The retail
appetite for corporate bonds has been a fillip for other cashstrapped
European borrowers. In June when Eni, an Italian energy
group, sought to raise €1 billion from retail investors, it attracted
almost €6 billion in orders. EDF, a French utility, raised more than
€3 billion from a similar retail-focused issue. In the first six months
of 2009 the number of corporate issues raising more than €1
billion in denominations of €1,000 or less surpassed recent fullyear
totals (see chart).
Borrowers are normally hesitant to offer bonds in denominations below €50,000, the level at which
onerous EU reporting requirements kick in. Marketing bonds to thousands of individuals instead of a
handful of institutions is costlier. Bankruptcy is more complex. But the benefits of tapping new sources of
credit now appear to outweigh the costs. And with cash parked in bank accounts earning little interest,
savers are hungry for higher returns. The practice may even spread to Britain, where issuers have been
warier of retail investors. The London Stock Exchange, owner of a thriving retail-bond exchange in Italy,
has mooted plans for a similar platform on its home soil.
Copyright © 2009 The Economist Newspaper and The Economist Group. All rights reserved.
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