Mini-bonds are an innovative financing instrument for unlisted companies that are easy to issue, less complicated and less expensive. They are medium- to long-term bonds or debt securities issued by unlisted Italian companies, typically SMEs, normally intended for development plans, extraordinary investment operations or refinancing.
Mini-bonds are an effective instrument that allows innovative small and medium-sized companies to open up to the capital market, reducing their dependence on bank credit. Like all bonds, they have a recognised interest rate in the form of a periodic coupon, and a maturity date.
Who can issue mini bonds?
The 2013 Destination Italy Decree states that issuers must be unlisted Italian companies, other than banks and micro enterprises (Borsa Italiana requires companies to have had their latest approved financial statements certified by an external auditor). Turnover must exceed € 2 million or the workforce must consist of at least 10 employees. Beyond the provisions of the regulations, it must be stressed that the mini-bond is not a support tool for companies in crisis, but a financing opportunity on the capital market for healthy companies, with good performance in recent years and with precise growth plans for the coming years, which for various reasons decide to do without bank credit or, at least, to supplement it with alternative debt instruments.
Mini-bonds and crowdfunding
Following the amendments made by Consob to the Crowdfunding Regulation to incorporate the regulatory changes introduced by the 2019 Budget Law, small and medium-sized enterprises can place bonds and minibonds also through authorised Equity Crowdfunding portals. These instruments can be subscribed by institutional and professional investors in addition to certain categories of "non-professional" investors. In particular:
1. non-professional investors who hold a portfolio of financial instruments exceeding € 250,000;
2. non-professional investors who undertake to invest at least € 100,000 in an offer, declaring that they are aware of the degree of risk involved in the investment;
3. non-professional investors, in the context of portfolio management or investment advisory services.
We would also like to remind you that the legislation also provides for banking foundations, start-up incubators and natural or legal persons having a portfolio value of financial instruments, including money deposits, in excess of €500,000 and in possession of particulars including:
· having made, in the last two years, at least three investments in share capital or by way of shareholder financing in small and medium-sized enterprises, each of which for an amount of at least €15,000;
· having held, for at least twelve months, the position of executive director in small and medium-sized enterprises other than the bidding company.
Why invest in mini bonds
Mini-bonds represent a significant opportunity to diversify one's portfolio, so as to mitigate overall risks, with coupon-yielding bond instruments alongside equity investments.
Furthermore, they offer a particularly advantageous dynamic from a liquidity point of view, i.e. getting back the money invested and future coupons before the minibond matures.
In fact, minibonds can be listed on Borsa Italiana's ExtraMOT PRO 3, the market dedicated to alternative financial instruments to bank loans. This means that the platform can not only place newly issued debt securities (primary market), but also list them and follow the issuer throughout the life of the instrument (secondary market). Investors thus have the possibility, should they consider it strategic to their needs, to liquidate the securities held before their natural maturity.
Among the advantages of the minibond rules are the exemption of withholding tax and the possibility of applying a substitute tax directly on the interest received in the coupon also for unlisted companies. Consequently, if the issue qualifies as a minibond, the investor as a natural person (or another investor not subject to IRES) gets a coupon already discounted by the 26% substitute tax. Investors subject to IRES, on the other hand, will get a coupon with gross interest.
Tax benefits for issuing companies
An advantage for the issuing company is the possibility to deduct the interest paid on the mini-bonds, even if they are unlisted companies. In particular, the difference between interest income and interest expense is deductible to the maximum extent of 30% of gross operating income. The application of this rule must always meet the conditions set out above, i.e. the company's bonds must be traded on a regulated market or a multilateral trading facility within the EU; or the unlisted bonds must be held by qualified investors under Article 100 of the TUF.
In addition, expenses incurred in connection with the issuance (e.g., placement fees, professional fees, rating analysis) are deductible in the period in which they are incurred, regardless of which accounting policy is used to allocate them.
The issuer may also benefit from the same substitute tax applicable to medium/long-term bank loans. This tax, which is equal to 0.25% of the amount financed and is applied directly by the placing institution, replaces registration, stamp and tax on government concessions. Generally, this substitute tax is applied in the case of issues guaranteed by third parties and the issuer may benefit from it only if explicitly provided for in the bond issue resolution.
The listing of the minibond represents an important step for the issuing company, which will thus begin to become acquainted with the dynamics of the capital markets in view of a possible future listing on the stock exchange of its own share capital as well.