Frankfurt The preparations at Mahle are in full swing. The auto supplier is expected to tap into the bond market in May. A volume of around 500 million euros is planned, maybe it will even be a little more. A term of around five to eight years is targeted.
For Mahle CFO Michael Frick, the right mix is crucial when it comes to refinancing: “We see bank loans as a limited resource. When it comes to large-volume corporate financing, we rely on the capital market, ”he says in an interview with the Handelsblatt.
It is not the first time that Mahle has issued bonds. In 2014 and 2015, the automotive supplier placed bonds in the amount of 300 million and 500 million euros. The papers mature in May this year and in May next year – and are to be replaced by new bonds.
This is time-consuming, but in Frick’s opinion it is worthwhile: “We address international investors and make ourselves more independent of banks.”
That is also in the opinion of Ingo Nolden, who at HSBC Germany manages the capital market business with companies, important: “Access to finance independent of banks is a competitive advantage for companies.” In addition: “Companies can borrow money with any term, even longer than ten years, via bonds.”
Analysts also rate bond placements positively. At Mahle, for example, Gerhard Wolf, Head of Research at Landesbank Baden-Württemberg (LBBW), praised the good liquidity and access to the bond market.
More companies than ever before used this access in the past year. According to LBBW calculations, 140 companies in Europe issued bonds with a total of 500 billion euros. At the same time, financing costs on the bond market fell rapidly. Mahle CFO Frick is currently speaking of the “window of opportunity” – of a good opportunity for a bond placement.
Thanks to the low interest rate policy and the massive bond purchases by the European Central Bank (ECB), the yields of corporate bonds have fallen significantly again since February 2020. On average, the returns on corporate euro bonds are just under 0.9 percentage points higher than those on government bonds, and thus even lower than a year ago.
The exact conditions are of course dependent on the term of the bonds and the creditworthiness of the debtors. “Companies that rarely issue bonds usually have to pay slightly higher interest rates than large corporations that regularly place large bonds,” says Nolden from HSBC.
Investors like bigger bonds
The bond market is dominated by the large corporations. So far, medium-sized companies have rarely been represented there. According to Nolden, this is due, among other things, to the fact that “most institutional investors require an average of at least 250 million to 300 million euros per bond”.
Investors in the bond market are primarily portfolio managers at fund companies, insurers, pension funds, banks and other companies. The so-called benchmark are bonds with a volume of 500 million euros.
Bonds are listed on the stock exchange and traded among investors. Trading only works for bonds with a minimum volume of around 300 million euros. “Sub-benchmark bonds are typically subscribed to by 30 to 70 different investors,” Nolden knows from experience.
Only large medium-sized companies – like Mahle – have a refinancing requirement of several hundred million euros. With a turnover of almost ten billion euros last year, the Stuttgart manufacturer of engine and cooling systems as well as components for electromobility and fuel cells is one of the 20 largest automotive suppliers worldwide. Mahle now achieves around 60 percent of sales in the passenger car sector beyond the internal combustion engine.
Mahle’s CFO also relies on the capital market for financing.
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(Foto: PR)
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Mahle GmbH is not listed on the stock exchange. The company’s founders Hermann and Ernst Mahle transferred their property to a foundation in 1964. “In terms of sales, we are not a medium-sized company, but our thinking is medium-sized,” says CFO Frick, who will also take over the interim chairmanship of the Mahle Executive Board from April until a new CEO is appointed: “We think entrepreneurially long-term.”
The German drug manufacturer is one of the large, partly listed, medium-sized companies that issued bonds in the past year The herds, the Swiss real estate company Peach Property and the car rental company Sixt.
Transparency is a must
There is one thing that companies that issue bonds must not be afraid of the public. “The market for corporate bonds is very transparent – this is one of the reasons why SMEs are only represented to a limited extent on the bond market,” says Hans-Werner Grunow, managing director of the consulting firm Capmarcon, which specializes in financing.
Mahle, too, has become more transparent with the placement of the first bonds seven years ago. “We have professionally developed our investor relations department, we are preparing our figures in a way that is more target-group-oriented, and we hold regular investor calls,” says Frick. He sees this as an advantage: “The feedback from investors also helps us to question our own paths.”
The Handelsblatt presents the growing number of alternatives to traditional loans in a series – tailored to the needs of the company.
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Annual reports are required for a bond placement. In addition, it is customary to provide a “semi-annual report with a rough overview of business development,” as Nolden says. In addition, companies that have bonds outstanding are subject to ad hoc obligations. Relevant capital market information that could significantly move the bond prices must be published immediately via ad hoc announcement.
Thick prospectus
A requirement for a bond placement is also an issue prospectus, which must be submitted to the stock exchange on which the bond is listed. The prospectus covers around 140 pages for companies with a credit rating that is in the investment grade range for solid debtors. A large part of the prospectus is made up of information from the annual report.
The information on the special bond terms and conditions and the risk information are particularly decisive and time-consuming. “A prospectus is a kind of comprehensive information folder that shows everything an investor needs to know before buying the bond,” summarizes Nolden. Therefore, the prospectuses for companies with a rating in non-investment grade are also significantly more extensive with around 400 pages.
Companies can hardly produce the documentation on their own. Advice from external law firms is just as necessary for bond placements as is the commissioning of banks. The financial institutions advise companies on the placement and conditions and sell the bond to investors. The fees for this depend on the effort. However, companies should estimate costs of around one million euros for the documentation alone – i.e. the prospectus.
Rating expands the circle of potential investors
Companies that use the bond market more often set up a so-called “Euro Medium Term Note” program, or EMTN program for short. As a framework, it contains all the information and enables companies to issue bonds at very short notice. All that is needed for documentation is a brief supplement with the bond conditions.
Mahle also has an EMTN program and is currently in the process of updating the program. The auto supplier also wants to have its creditworthiness assessed by rating agencies. A public rating is not absolutely necessary for bond placements. However, it expands the circle of investors who can subscribe to the bond. This is exactly what Mahle CFO Frick is important.
Read the parts of the series that have appeared so far here:
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