Mini-bonds are financial instruments issued by unlisted companies, which make it possible to obtain financing without having to resort to traditional banking channels. Mini-bonds are gaining more and more space in the corporate financing market due to their flexibility and the advantages they offer to both companies seeking capital and investors.
In essence, companies wishing to issue mini-bonds propose an interest rate to their investors, who decide whether or not to subscribe to the offer. If the offer is successful, the company receives the money it needs to finance its projects, while investors receive interest on their invested capital.
The benefits of minibonds for investors and issuing companies
Among the main benefits for investors in minibonds are:
· Yield: minibonds offer a higher return than government bonds or bank deposits, as they carry a higher credit risk.
· Diversification: investing in minibonds allows investors to diversify their portfolio, reducing their overall risk by purchasing securities of different companies in different sectors.
· Liquidity: minibonds can be traded on the private market, offering greater liquidity than other forms of long-term investment.
· Tax advantages: minibonds are subject to a tax rate of 26% on individuals and there is no withholding tax for companies and commercial entities or foreign companies resident in 'white list' countries.
For the companies that issue them, mini-bonds offer an opportunity to raise capital quickly outside traditional bank financing channels. In addition, mini-bonds also offer a greater degree of flexibility than other financial instruments. For example, they can be issued with varying maturities and with interest rates that can be individually set according to the needs of individual companies.
What costs should be considered
As a result of rising interest rates, the gap between bank and minibond rates will narrow. Issuing companies also need to consider the administrative costs of issuing minibonds, including the notary, legal costs, advisors and the expected fee for the platform hosting the offering. However, it is possible to amalgamate some of these expenses by using a centralised service such as debt.2meet2biz.com.
From an investor's point of view, it is possible to benefit from a reduction in the actual cost of financing thanks to tax deductions provided by the legislation. In other words, the interest paid on minibond investments can be deducted from the investor's taxable income, thus reducing his or her income tax bill.
The numbers of minibonds in Italy
The minibond market in Italy is still small compared to other countries in Europe. However, many companies, especially small and medium-sized enterprises, are taking advantage of this alternative financing opportunity to diversify their sources of capital and broaden their investor base.
According to the report of the Politecnico di Milano's Minibond Observatory, in 2022, as many as 190 companies made use of minibonds for a number of 268 issues (the year before there were 221) and an amount of 1.65 billion raised (988 million from SMEs alone). Of these, a quarter issued securities of less than EUR 2 million. As far as the sector of activity is concerned, manufacturing is still in the lead (34.6% of the 2022 sample), while a leap was observed in construction (16.5%). Geographically, Lombardy is still first in terms of number of issuers (63), followed by Veneto (50), Piedmont (28), Emilia-Romagna (24), Campania (19), Lazio (16), Tuscany (12) and Apulia (7).
In the ten years from 2013 to 2022, 1,016 companies issued minibonds and of these 663 were SMEs (65.3% of the total). The number of issues over the same time period was 1,461, with a total nominal value of EUR 8.61 billion (EUR 3.56 billion from SMEs alone).
In conclusion, we observe that the growing demand for minibonds could lead to increased competition among issuing companies, possibly reducing the yield offered to investors. Nevertheless, industry experts predict that, overall, minibonds will continue to be an attractive source of financing for Italian companies in the coming years.