Europe

The Italian Treasury enjoyed an enviable 2015, as for once the country’s political scene was a beacon of stability, at least compared to certain other European countries. That stability is one of the reasons cited for BTPs outperforming Spanish government debt in 2015 — while Spanish bonds suffered turbulence during a year of regional and general elections, Italy’s government looks like being the first in many years to survive a full term in office. With an executive that has been able to drive economic, legal and political reforms through a parliamentary system notorious for inducing stalemates, investors are hopeful that strong economic indicators could evolve into real growth in 2016. Italy is not immune to the forces that have disrupted markets and macroeconomic outlooks across Europe and beyond — from dwindling liquidity in secondary markets to banks leaving primary dealerships, and struggling emerging markets dampening demand for the country’s exports. But the country also has advantages that many of its European peers lack — not least the unflinching demand for government debt from its vast retail investor base that has allowed it to print some of the largest bonds ever seen in the government debt markets. GlobalCapital gathered together investors, bankers and representatives of Italy’s finance ministry to discuss the outlook for the country’s debt in the international bond markets.

Italy’s army of retail investors represent a big opportunity for asset managers and bond issuers alike, with high yield companies likely to receive the warmest reception of all. Phil Moore reports

With a €2.2tr debt mountain, Italy needs to keep the pressure on in its privatisation programme. 2015 has some some impressive successes, including the sale of a stake in CDP Reti to State Grid Corporation of China and the €3.4bn IPO of a minority stake in Poste Italiana, and there is plenty in the pipeline. Phil Moore reports.

Italy scored a string of remarkable successes in the bond market in 2015, issuing some of the largest long-dated syndicated deals of recent times and seeing its spreads tighten. And with structured reforms, political stability and a growing economy, the country looks set for an equally impressive 2016. Phil Moore reports

Economists have more reason to feel upbeat about Italy’s prospects now than in years, but a lot hinges on the prime minister’s reform agenda and the European Central Bank’s quantitative easing programme, writes Phil Moore

Italy’s economic outlook

In May 2013, Salvatore Rossi was appointed senior deputy governor of the Bank of Italy, where he has served since 1976. In this interview with GlobalCapital’s Phil Moore, he shares his views on the prospects for the Italian economy, banking industry and capital markets.

Although tiny in volumes and deal sizes, compared to public bond markets, the Euro private placement market has been a big success since its birth almost four years ago. Under the watchful guidance of the Banque de France and other authorities, as well as leading bankers, lawyers and investors, the market has gone from zero in 2012 to over €7bn outstanding. It has become a mainstream source of capital for French borrowers, especially mid-caps, and an attractive alternative to yield-hungry investors. Like its German cousin, the Schuldschein market, it is also attracting a higher proportion of international borrowers and investors than ever before. However, challenges remain, not least what happens when interest rates start to go up and investors face a greater choice of investment opportunities. There are also concerns as to what happens when the credit cycle turns and how this market, so far untested and much of it unrated, will cope with bankruptcies and messy workouts. GlobalCapital invited some of the Euro PP market’s leading players, including issuers, investors, bankers, lawyers and regulators, to a roundtable in Paris on November 19 to discuss these topics and many more.

As Europe moves to develop its own private placement markets, the model for these efforts is the US PP market. For several decades, a committed investor base of US insurance companies have been buying private investment grade bonds, and for the last 20 years, many of those have come from European issuers. Through turbulence in other financial markets, this channel of funding has kept flowing, as the investors take a long view on credit and are less prone to get the jitters if markets sell off. But beneath the surface, the market is changing. Investors know they need to keep competing for deals with other sources of funding, including a vastly increased European public corporate bond market, and now European PPs. To do this, they are offering very flexible terms to issuers — and keen pricing. GlobalCapital gathered a group of leading investors, issuers and investment bankers in the market in London to discuss its progress and how the market is responding to changing conditions. The panel ended by debating whether the US PP documentation could be used as a model for European deals.

The Schuldschein is breaking new ground. The centuries-old German promissory note is no longer just a product for German companies to issue and regional savings banks to invest in. Schuldscheine, half way between bonds and loans, have attracted foreign issuers, foreign investors and even foreign arrangers in recent months, and the limits of the market are truly being expanded. Meanwhile, European policy makers have picked private placements as a favoured source of funding for Europe’s SMEs. That could be great for the Schuldschein, or it could pose a threat, if attempts are made to harmonise PP formats across Europe, and some of its quirky attractions, such as light documentation, are squeezed out. Meanwhile, the product is basking in demand so enthusiastic that issuers can often obtain better terms than they can get in the public bond market or from banks. Issuance in 2015 is nearing €20bn, close to a record, helped by huge deals like the €2.2bn acquisition financing by ZF Friedrichshafen. So far, most issuers are of high credit quality, but there are rumbling debates about whether and how the market should be opened to weaker issuers. GlobalCapital gathered issuers, investors and investment bankers in Frankfurt in November, to discuss how to safeguard and promote the future of this bustling market.

In the last RMB round-up of 2015, HSBC became the first foreign bank to issue RMB-denominated CDs to corporates in China, Hungary plans RMB bonds in 2016 and Russian bank VTB saw a big boost to its RMB business in 2015. Plus, a recap of GlobalRMB’s top stories this week.

Over €30bn of covered bond supply is expected from borrowers in Spain and Italy next year but with nearly €40bn of Cédulas redeeming, the technical backdrop is most constructive in Spain.