Bond investment instruments to diversify the sources of financing for SMEs and to facilitate access to liquidity. Full details on what they are and how they work.
Minibonds are a strategic tool to diversify the sources of financing of companies not listed on the stock exchange and allow to raise funds from investors in exchange for debt securities.
What are minibonds
Minibonds are real bonds, designed above all for all SMEs looking for liquidity. They are in fact used to finance working capital (short term) or to support investment plans or internationalization (medium-long term).
They therefore allow companies not listed on the stock exchange to open up to the capital market, reducing their dependence on bank credit. Obviously, being real bonds, minibonds have an interest rate, recognized in the form of periodic coupon, and an expiry date.
The elements that characterize minibonds are:
- amount or value of the issue;
- duration of the issue between three and seven years on average;
- interest rate paid via coupon;
- repayment terms;
- yield, composed of interest plus capital gain;
- covenants, specific contractual clauses to protect investors.
How minibonds work
Minibonds work like normal bonds and can be:
- amortising: with gradual repayment of capital at pre-defined maturities;
- bullet: with full repayment upon expiry of the instrument.
Who can issue and subscribe to minibonds
Minibond should be considered a financing opportunity on the capital market and not a support tool for companies in crisis.
The subscription of minibonds is instead generally reserved for professional institutional investors and other qualified subjects:
- banks;
- investment firms;
- Sgr;
- harmonized management companies;
- Sicav;
- financial intermediaries registered in the list provided for by article 107 of the banking law;
- banks authorized to provide investment services also with registered office in a non-EU country;
- retail investors via crowdfunding platforms.
How minibonds issue works
Let us now analyze the phases of the issuance process:
- preliminary phase of study, analysis and verification: SMEs that want to issue these securities must prepare a economic-financial plan;
- loan structuring phase and drafting of the information memorandum, on the basis of the economic-financial plan and containing information on the company, its market positioning, management characteristics, reimbursement and remuneration offered to investors;
- investor search phase and one sponsor for the placement of the minibond issue;
- phase of quotation of the minibonds.
Minibond issuance costs
The costs for SMEs that issue minibonds are very low given that no commissions are envisaged and the activation of ancillary guarantees is less onerous.
So generally the cost is between 1% and 2.5% for the overall issue and any listing of the minibond. Consequently, the indicative annual cost is included in a range that goes from from 5,000 to 15,000 euros.
Here are the various cost components in detail:
- interest rate (quarterly/half-yearly/yearly);
- legal costs;
- Isin code request;
- business plan: it is prepared by the issuer with the help of an Advisor;
- ratings;
- management of the website and in general of the requested information;
- periodic information report;
- Placement fee;
- fees for quotation.
Original article published on Money.it Italy 2022-08-12 11:12:45. Original title: Minibond: cosa sono e come funzionano
