Legislation to stimulate corporate bond market

Legislation setting out the institutional framework for corporate bonds will be tabled in Parliament next month, which will make it easier for companies to tap the bond market for funds, Economy and Finance Minister Nikos Christodoulakis said yesterday. He said the proposals would help companies currently facing problems raising funds from the slumping stock market. They would also promote a form of financing which constitutes uncharted territory for Greek investors. Economists said the government’s decision to jump-start the corporate bond market could face problems ranging from the easy availability of cheap bank financing to investors’ ignorance of the sector. «It’s a chicken and egg situation. Demand from investors is expected to be very low because of the lack of big issuers, while on the other hand, companies would hesitate to venture into the market because of the absence of investors,» said one economist. For those companies that have tapped the corporate bond market, low liquidity and a lack of trading activity continue to be the major problems. Antenna TV station, dairy product manufacturer Delta, passenger shipping firm Attica Shipping, and recently, Hellenic Railways are a few of the companies that have issued bonds, either locally or abroad. Christodoulakis said current restrictions on corporate bonds would be lifted and red tape and charges reduced. A requirement restricting the size of corporate bonds to below 51 percent of a company’s capital would be scrapped. Firms seeking to issue corporate bonds would only need to get approval from the board of directors and not from shareholders, as is the case now. Corporate bonds could be backed by a company’s securitized liabilities or real-estate assets. Lastly, retail investors will have easy access to the corporate bond market without the need to go through institutional channels. National Bank of Greece economist Paul Mylonas said attractive spreads and the right price are crucial to attracting investor interest. He said the adverse developments at the stock market could impel investors to seek better returns elsewhere. The lack of familiarity with the concept, however, could hold back investors, said one economist. «Greeks are not educated on corporate bonds nor are they used to buying four-year, 10-year paper,» he said. Mylonas said stoking up corporate interest is a more difficult feat. «It’s cheaper for companies to get bank financing because of the low rates,» he said. Another problem lies in creditworthiness. He said the highest credit rating for a local firm would be a triple B, just one notch below Greece’s sovereign rating. Among those that have gained this distinction are National Bank, Alpha Bank and EFG Eurobank. However, the majority of Greek companies are not expected to be so fortunate.

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