Thanks to the 2012 Development Decree, minibonds have become a new financial instrument available to Italian SMEs, which now have the opportunity to raise capital in debt crowdfunding with debt securities of less than EUR 50 million.
The main advantage of minibonds, therefore, is that they offer an alternative to small and medium-sized companies, which can thus reduce their dependence on bank credit and diversify their sources of financing.
Italian SMEs have always been attracted by alternative finance and minibonds have been welcomed. According to research by Politecnico di Milano's Minibond Observatory, by the end of 2021, 832 Italian companies had placed minibonds for a total of 1220 securities issued. The objectives are usually the promotion of development plans, the restructuring of financial liabilities or the implementation of extraordinary investment operations.
What Italian law provides for debt crowdfunding
The amendments to the TUF (Testo Unico Finanziario) introduced by the 2019 Budget Law allowed crowdfunding platforms to expand their operations by integrating financing through debt instruments that until then were the exclusive prerogative of banks, SIMs and investment firms. Thus debt crowdfunding operations were born, i.e. the sale of debt securities in crowdfunding to raise capital: a new and easily accessible opportunity for small and medium-sized enterprises.
Italian law requires that the issuance of minibonds must take place in a section of the portals that is different from those dedicated to equity crowdfunding and other funding methods. The only target admitted by law are professional investors and particular categories of investors possibly identified by Consob.
Investors who purchase Minibonds in debt crowdfunding are entitled to full repayment by a predetermined maturity date and to predetermined interest paid through periodic coupons. For companies, there is the possibility of only incurring interest payments during the entire term of the loan, and then paying it back in a lump sum at the end of the term.
This flexibility is in addition to the other numerous advantages of issuing minibonds, including the opportunity to get in touch with types of investors that may be useful for the company's future development and the numerous tax benefits.
The differences between bonds and minibonds
The differences between minibonds and bonds, the traditional financial bonds, consist first and foremost in who they are addressed to. The former are in fact also accessible to unlisted companies, while the latter are not. Moreover, the requirements in terms of amount, duration and conditions for issuing minibonds are much less stringent than those for issuing bonds.
The minibond rules also provide for a simplified tax regime and concessions for unlisted companies. Companies that issue minibonds, unlike those that issue bonds, are exempt from withholding tax and can apply the substitute tax directly on interest if the investors are natural persons or entities not subject to IRES. The latter therefore receive net coupons, already discounted by the substitute tax.
This tax regime is also applicable to unlisted companies, as anticipated, but in order for investors to qualify for the tax benefits provided, the company's bonds must be traded on a regulated market or a multilateral trading facility within the EU; if not, they must be held by qualified investors pursuant to Article 100 of the TUF to qualify for the tax benefits. To facilitate compliance with these requirements, Borsa Italiana has activated Extra Mot Pro, a platform dedicated to the listing and exchange of minibonds that provides simplified rules for these transactions compared to traditional listing.
From the issuing company's point of view, the tax advantages offered by the Minbond rules also include the possibility of deducting interest expense: the difference between interest income and interest expense is deductible up to a maximum of 30% of gross operating income. The deduction possibility also covers all expenses incurred in the issuance of Minibonds.
Finally, if the issues are guaranteed by third parties, the issuing companies may benefit from the substitute tax already applicable to traditional medium- to long-term bank loans: a tax equal to 0.25% of the financed amount that replaces registration, stamp and hypocatastical taxes and the tax on government concessions.
The numbers of the minibond market in Italy
As already mentioned, from the market's inception in November 2012 until 31 December 2021, 832 Italian companies have placed minibonds - 62.5 per cent of these are SMEs. In 2021, there were 200 issuers, of which 163 entered the market for the first time.
2021 contributed EUR 1.1 billion and 219 issues. Of these, 12% were listed on the Extra Mot Pro.
Basket bonds, i.e. system projects aimed at aggregating issuers by geographic area or production chain, also through securitisation transactions, gained further space in 2021. To date, 11 initiatives have been counted, involving 150 companies and catalysing over EUR 1.2 billion in resources.
Looking at the period 2016-2021, it is possible to calculate that 8,000 new jobs have been created in Italian SMEs thanks to the minibond issue, an increase of 19.3% compared to the workforce at the time of issue.
Future prospects look positive. Factors such as the increase in the cost of energy and raw materials will certainly have an impact on the sector, which nevertheless has two important driving factors on its side: the arrival of new basket bond programmes and the growing focus on ESG issues - the stimulus for SMEs to raise capital through minibonds specifically designed to finance sustainability-oriented projects. The raising of new private debt funds will also be a catalyst for further market growth.