New ground rules to help companies raise funds privately across Europe have been introduced as the EU financial industry seeks to reduce a reliance on banks and US investors.
Banks are traditionally the main source of corporate funding in Europe, but EU officials want to increase how much cash for companies is raised from markets, to make the region less vulnerable to banking shocks like the 2008-9 global crisis.
They are also seeking to keep money within the European financial system so it can aid the economy – and want a pan-European approach to give companies a wider pool of investors, to allow the region to compete with the bigger US market.
The new rules cover private placements, which are typically used by mid-sized companies and refer to securities like bonds sold privately to a select group of investors, or loans taken out from such groups.
Currently, rules differ on a national basis
The pan-European private placement working group, which groups several trade bodies, aims for its new guide for these transactions to become the main market reference, like similar templates for bond trades.
About €2.7 trillion of corporate debt will need to be refinanced by Europe’s 200,000 mid-sized companies over the next four years, research from Standard & Poor’s indicates.
The EU initiative, backed by the British government, the Bank of France and Bank of Italy, is all the more urgent as banks have been reining in lending as they focus on bolstering capital.
The guide lists the characteristics of a pan-European transaction, showing how it differs from other forms of debt, and setting out the roles and responsibilities of the borrower, investors and legal counsel.
It also lists key requirements such as information disclosures and due diligence.
Currently, rules differ on a national basis.
Next week the European Commission kicks off plans for a Capital Market Union aimed at making it easier for companies to raise cash to invest in growth and jobs.
The French and German domestic private placement markets issued about €15 billion of debt in 2013, the working group said, with a further €15.3 billion raised by European companies in the US private placement market.
The group includes the International Capital Market Association, the Association for Financial Markets in Europe, the Investment Association and a French private placement body.
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