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Friday, 20 October 2017

Germany 2007

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This year's special report on Germany finds the country confounding the doubters in many areas. Despite concerns about the ability of the Grand Coalition government to deliver on reform, the still booming world economy has boosted economic growth, and against that background, corporates are increasingly looking beyond the country's borders for acquisition-driven growth opportunities.

Investment bankers are naturally hoping to reap the rewards. However, as the market becomes more competitive, foreign firms have eroded local players' market share.

One area seeing the benefit of increased activity is the equity capital markets, where volumes are running at their highest level since the market peak of the Neuer Markt era. Here, the focus of the international banks is on large transactions, which leaves scope for the smaller players to compete on the smaller issues.

In the Pfandbriefe sector, Landesbank Berlin’s announcement that it will reject the classic Pfandbrief framework in favour of its own structure has rocked the market. Opinion is divided. The Pfandbrief's advocates still celebrate it as the purist of covered bond structures, but others complain that the smaller savings banks struggle to gain access to funding by this route. Could it be that more issuers will choose to sacrifice the Pfandbrief's high standards in return for more accessibility?

In the securitisation market, the outlook for German issuers has never been better. Volumes are forecast to rise further after a bumper 2006, but the mix of business is likely to be different. Last year's major growth driver, multi-family CMBS, is likely to take more of a back seat in 2007.

And the current financing boom has even affected the German loan market. After years of lagging behind the UK and France, the German market finally seemed to have come of age in 2006 with a string of jumbo acquisition financings. However, after a poor start to 2007, the market is now under pressure to prove it is not a just one-year wonder.

In the leveraged segment, Germany has long been considered the promised land when it comes to LBOs. The market has remained small relative to its economy and should offer huge potential for growth. With European leveraged finance booming in general, there is no reason Germany cannot finally live up to that promise – unless of course the broader, international LBO market crashes first.

The global hunt for yield has also led a growing number of hedge funds to converge on Germany over the past two years. The rush to take advantage of restructuring opportunities has brought success for many, but as activity is reduces to more sensible levels, only the most successful firms look likely to stay the course.

In the derivatives arena, the German warrants and certificates markets are going from strength to strength. The sector forms Europe’s biggest securitised derivatives market, and participants seem confident that it is far from peaking. Certainly the number of recent entrants to the market attests to growth expectations.

Finally, we profile Deutsche Boerse's rebranded Entry Standard junior market and one of its players – Equinet Securities. Deal sizes on the Entry Standard have quickly accelerated to over €100m, with companies taking advantage of greater flexibility and lighter regulation, and the smaller broking firms are certainly getting a slice of the action.

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