The EU Growth Prospectus Influence on the SME Access to Issue Corporate Bonds

Nikolaj Søderberg Nielsen

Student thesis: Master thesis

Abstract

This thesis aims to explore the financing of SMEs via corporate bonds and the influence that the regulation on EU Growth Prospectuses provides to the SME access to capital markets. SMEs deliver significant value to the job creation and growth in the global economy and their access to finance is essential for the economy's continued advancement. The use of corporate bonds in Denmark is poor and in 2017 the market had an outstanding amount of DKK 200 bn, which is a less than other Nordic countries. Bond issues from larger corporations, whom are already listed on the stock exchanges, generally characterize the market. The market analysis of this thesis revealed that new loans to SMEs have decreased and market expectations are that stricter loan terms and greater demands for collateral will occur from banks in the forthcoming future. An examination of the capital structure and choice of financing source of SMEs showed, that there is a low debt level and that financing often happens via equity. The analysis concluded that the low debt level is due to the credit constraints of SMEs and it is suggested that efficient access to the capital markets may alleviate this constraint recognizing that corporate bonds is one option for debt financing. The issuance of corporate bonds under Danish law has undertaken some corrections and is now harmonized with international expectations. Bond terms may vary dependent on market conditions, but clauses frequently used include negative pledge and pari passu, as well as covenants ensuring investor protection. The scope of credit institutions monopoly on deposits has been amended to not clash with corporate bonds issuances and the use of a trustee has been anchored by law. Finally, this thesis explores the prospectus regulation and ultimately concludes that the EU Growth Prospectus contains lenient information standards, which requires fewer resources to produce without compromising market trust hurdled by asymmetric information between the investor and issuer. There is great uncertainty about whether the Growth Prospectus will impose any significant change to the SME corporate bond market, as other factors such as liquidity, credit ratings and regulation of institutional investors continue to hinder the development of such market.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2019
Number of pages102