Bologna, Italy, 28 June 2016

​CRIF Ratings believes that debt availability for small and mid-caps in 2016 may be constrained as a direct result of the financial market turbulences triggered by the unexpected outcome of the “Brexit” referendum held on June 23, turbulences which are likely to persist in the medium term.

Both bond issuance volumes and available banking debt are likely to shrink in 2016. CRIF Ratings expects investors will favor sectors with stable revenue generation and regional market exposure like utilities and infrastructure, while businesses which are highly exposed to commodity and currency risks will attract less interest.

In 1H16, Italian large corporate bond issuance volumes reached EUR7.3bn, resulting in a decline of 23% over the same period in 2015; similarly, small and mid-corporate bond issuance listed on the domestic bond market declined by 21% in 1H16 over 1H15 volumes.  The slowdown in the first half of the year was more severe in the second quarter as uncertainties over the result of the UK public consultation process became apparent.
The announcement by the European Central Bank (‘ECB’) of its Corporate Bond Purchase Programme (CSPP), a non-standard measure to strengthen and accelerate the transfer of favorable financing conditions to the real economy through direct asset purchases, has yet to show meaningful effects on issuance volumes. As the programme eligibility criteria require a minimum investment grade rating, the number of Italian corporate sector issuers likely to benefit from the programme will be quite limited and likely to be focused primarily on utility-type businesses.      

The bulk of Italian small and mid-size corporates, and in particular those exposed to currency and commodity risks will be less likely to access capital market funds in the short term or at least until the financial markets recover from the volatility levels registered in the last few days. Small and mid-size corporate bond issuance volumes in the first half of 2016 declined to a total of EUR160m against c. EUR630m in 2015. The later result was in turn 60% lower than the total issuance volume registered in 2014, which reached a record EUR1.5bn, the highest level seen since the opening of the domestic bond market to non-listed companies by  government decree 83/2012 “Decreto Sviluppo”.   
 
Clouds are also gathering on the Italian banking sector’s appetite for corporates credit risk. The concern with profitability is likely to deter the banking sector to continue in its strategy of aggressive competition with the capital markets on corporate funding started in 2015 and ensuing access to cheap funding introduced by ECB’s TLTRO programme.
Overall not a good picture on access to funding for Italian corporates, which is likely to reduce companies’ investments budgets and trigger re-thinking of long term growth strategies.   

Francesca Fraulo - Managing Director – Head of Corporate Ratings
f.fraulo@crif.com

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