IFR German Corporate Funding Roundtable 2016

IFR convened its fifth annual German Corporate Funding Roundtable in Frankfurt in mid-November just as bond markets, led by US Treasuries, were starting their sharp re-pricing off the back of higher inflation expectations and tighter US money.

Against this uncertain backdrop, our expert panellists held a spirited and engaged discussion about the state of the market in the face of a series of extraordinary macro and technical factors, and assessed how the funding landscape was holding up for German corporates.

Of course, the injection of central bank liquidity in Europe has acted as a volatility buffer and made funding markets pretty resilient. Borrowers have taken advantage of the good times and deftly navigated around volatility events, having benefited from a variety of receptive funding channels and solid investor demand.

Most German corporates find themselves in robust liquidity positions, having tapped bond, loan and Schuldschein markets with style and in size. They have ridden out pressure points when they have emerged and as a rule have built broadly conservative funding structures.

Back-up facilities have mainly been redone so the market is not expecting much of a refinancing wave until 2019-2020. That may not bode well for growth in general-purpose funding but with ready take-outs available in the bond market, bank lenders have been comfortable around acquisition finance.

One panellist pointed to a cultural difference between German corporates and UK or US peers where German CEOs are less open to financial engineering and won’t press the deal-making button just because of the lure of cheap money. But if ZF’s acquisition of TRW created a frisson of expectation around M&A in Germany last year, financiers are very excited about the impact of Bayer’s US$64bn takeover of Monsanto and the onset of more takeover financing.

Another interesting talking point was the popular Schuldschein market. This previously very German market is now heavily international, and enjoyed another year of stellar growth in 2016. The market is open to issuers of all sizes and continues to push the volume and maturity envelope.

The fact that an Austrian issuer – Semperit Group – was able to tap the German Schuldschein market for US dollars, Polish zloty and Czech koruna underlines the flexibility of this market. But at the same time SSD have attracted a bit of chatter around the crossover names that have approached the market, which some say are not suitable for this investment-grade product. In particular, slim SSD documentation might not be sufficient for investors in cusp names.

Corporates have enjoyed access to a multiplicity of funding sources throughout 2016 in multiple currencies across a variety of global capital pools and will in all likelihood continue to do so. They will of course be mindful about things like FX exposures but generally speaking, the funding outlook for German corporates in the year ahead is steady as she goes. In a world of great uncertainty, that is rather comforting.