5. The Romanian corporate bond market
This chapter provides an overview of the trends in corporate bond markets both in Romania and at the global level. It also presents selected features, such as the maturity structure, currency composition and listing market, of corporate bonds issued by companies from Romania and peer countries.
Corporate bond markets have become an increasingly important source of financing for non-financial corporations over the past decade. They played a crucial role when banks tightened credit conditions after the 2008 financial crisis and during the market contraction in 2020. During these two periods, many companies around the world were able to tap the corporate bond market to roll over their existing debt, create a financial buffer to overcome an economic downturn or immediately use the proceeds to meet their obligations to employees, suppliers and customers. At the same time, since corporate bonds typically allow the borrower to issue debt at longer maturities compared to bank loans, they are also well-suited to finance long-term investments.
The last two decades have seen a remarkable increase in global debt levels, and corporate bonds are no exception to this trend. Particularly, non-financial companies have seen a stable increase in bond issuances. With the significant contraction of bank lending to non-financial companies during and after the global financial crisis, non-financial companies resorted to corporate bonds as an alternative source of financing. As shown in Panel A of Figure 5.1, non-financial corporations have raised an average of EUR 1.4 trillion annually between 2008 and 2019, which is almost twice the annual amount of EUR 801 billion that they raised between 2000 and 2007. A look into the regional distribution indicates that each region has seen a different evolution of the corporate bond market (Figure 5.1, Panel B). Europe has experienced a relatively slow nominal increase compared to other regions, and thus its share of proceeds decreased from around 30% of the global amount issued before the 2008 crisis to 20% in 2019.
Source: OECD Capital Market Series dataset, Thomson Reuters Eikon; see Annex for details.
Within Europe, companies from the United Kingdom, France and the Netherlands have been the largest users of corporate bonds, together accounting for over half of total European proceeds. Corporate bonds issued by CEE companies represent only about 1-2% of the European proceeds, which is much lower than the CEE region share in European GDP (Figure 5.2). 2019 was an exception, as corporate bond issuances by non-financial companies from CEE countries reached EUR 22 billion amounting to 6% of the European total proceeds. However, this was mainly driven by one large bond issue carried out by a Polish construction company.
A closer look at bond issuances by CEE companies shows an increasing use of corporate bonds after the financial crisis when banks strengthened borrowing requirements. As shown in Panel A of Figure 5.3, in 2012, corporate bond issuances reached a total of more than EUR 16 billion, issued by 332 companies, the second highest amount over the period analysed. Meanwhile, corporate bond activity has remained relatively low in Romania, where non-financial companies raised only EUR 349 million over the last decade (Figure 5.3, Panel B). The number of companies issuing corporate bonds decreased significantly after 2011, and only one company issued bonds in 2015. However, since the launch of the AeRO Market in 2015, which targets SME financing, the number of issues have seen a significant increase (Figure 5.3, Panel B).
Source: OECD Capital Market Series dataset, Thomson Reuters Eikon; see Annex for details.
Corporate bond activity in CEE countries still lags behind the rest of Europe. The average proceeds of non-financial companies during the 2009-19 period amounted to 0.4% of GDP, which is well below the European level of 2% (Figure 5.4, Panel A). In Romania, the value of corporate bond issuances between 2009 and 2019 represented only around 0.01% of GDP, compared with 0.3% in Hungary and 0.5% in Poland.
Source: OECD Capital Market Series dataset, Thomson Reuters Eikon; see Annex for details.
The industry composition of European non-financial companies issuing corporate bonds is more evenly distributed across industries compared to the bonds issued by companies from the CEE region, where around 63% of the proceeds come from three industries: utilities, consumer cyclicals and energy (Figure 5.4, Panel B). In the case of Romania, almost 72% of proceeds are from companies in the utilities and telecommunications services industries. Moreover, with the recent launch of the AeRO Market targeting SMEs, there has been a few technology companies issuing corporate bonds, although the amounts are relatively small.
One of the main advantages of corporate bonds is that they can offer the issuer longer maturities. Corporate bonds have about four to five years longer maturity than syndicated loans in developed countries and one to two years longer in developing countries (Cortina Lorente, Didier and Schmukler, 2016[1]). In recent years, as a result of the general low level of interest rates, companies have been lengthening the maturity of their issuances (Çelik, Demirtaş and Isaksson, 2020[2]). In Europe, most of the volume issued has a maturity of between 5 to 10 years. Bonds issued by non-financial companies from the CEE region represent an even higher share of the volume issued with maturities in that range (Figure 5.5, Panel A). However, the share of the volume issued with maturities over ten years is higher for European issuers than for issuers from the CEE region. In particular, over 35% of the amount raised by European companies via corporate bonds has a maturity longer than ten years, compared to 16% for issuers from the CEE region. Indeed, 27% of bond issuances by Romanian companies have a maturity of less than five years, compared to 3% and 10% for Hungarian and Polish companies. Notably, during the entire period, there was no single Romanian corporate bond issuance with a maturity over ten years.
Only 8% of the total number of corporate bonds issued by Romanian non-financial companies are listed on the Bucharest Stock Exchange (Figure 5.5, Panel B). This is much less than in Hungary and Poland where 34% and 67% of non-financial corporate bonds are listed on the local stock exchanges.
As most Romanian corporate bonds issued are listed on non-domestic exchanges they are also issued in foreign currencies. Indeed, as shown in Panel C of Figure 5.5, Romania is the country with the lowest ratio (6%) of corporate bonds denominated in the local currency (Romanian Leu). The rest is denominated either in EUR (54%) or in USD (40%). In contrast, in Poland and Hungary 70% and 38% of the corporate bonds are issued in local currency, respectively. It is also important to note that no issuances denominated in Romanian Leu have been listed on foreign exchanges, whereas for all other CEE peer countries, between 2-3% of corporate bonds denominated in local currency are issued on foreign exchanges.
Source: OECD Capital Market Series dataset, Thomson Reuters Eikon; see Annex for details.
Romania has a very low presence of domestic investors in the corporate bond market. Only 8% of the outstanding stock of non-financial corporate bonds are held by domestic investors, compared to 86% in Poland and 72% in Hungary (Figure 5.6, Panel A). Generally, there is a significant heterogeneity in the domestic ownership of corporate bonds across countries. Typically, the financial sector (including monetary financial institutions, investment funds, insurance corporations and pension funds, and other financial institutions) plays a significant role as owner of corporate bonds. Particularly, two categories of financial investors – monetary financial institutions and insurance corporations and pension funds – hold a large share of corporate bonds issued by non-financial corporations in most countries. They make up 85% of domestic bond ownership in Hungary, 58% in Germany and 54% in Austria (Figure 5.6, Panel B). This differs sharply for Romania, where their holdings are much smaller. Domestic monetary financial institutions hold only 8% of the outstanding stock of domestic non-financial corporate bonds, whereas domestic insurance corporations and pension funds do not to hold any of the outstanding stock. Instead, investment funds hold 50% of the non-financial corporate bond stock in Romania.
Non-financial corporations and households hold only a modest share of the outstanding stock of corporate bonds in most countries, except for the Czech Republic where households and non-financial corporations together hold 51% of the corporate bond stock. In Romania, households and non-financial corporations also own a relatively large share of corporate bonds, representing 25% and 14% of total domestic bonds, respectively.
Source: ECB Statistical Data Warehouse.
The Bucharest Stock Exchange offers two segments for listing corporate bonds: the regulated Main Market and the alternative trading system, the AeRO Market. Companies can list bonds for trading on both segments, but the Main Market targets larger companies and the AeRO Market targets small and medium sized enterprises. The AeRO Market is only regulated by the BVB’s rules and obligations, and was established in order to provide issuers a market with less stringent reporting obligations while maintaining a good level of transparency for investors. As there is no minimum issuance value and no prospectus requirement, the AeRO Market offers smaller companies an easier way of accessing the corporate bond market.
Since the creation of the AeRO Market in 2015, there have been 23 issuances raising a total of EUR 29.2 million (Figure 5.7, Panel B). Non-financial companies make up 74% of issuances on the AeRO Market. In fact, almost all bond issuances by non-financial companies in Romania are listed on the AeRO Market. In contrast to the AeRO Market, most issuances on the Main Market are done by financial companies and only 9.2% of issuances by non-financial companies. Over the last five years, a total of 12 issuances raised EUR 831 million on the Main Market (Figure 5.7, Panel A). Of these, only one in 2017 was by a non-financial company. The proceeds raised on the Main Market are typically much larger than those on the AeRO Market. While the average proceeds per deal raised on the Main Market is EUR 47.8 million, it is only EUR 1.27 million on the AeRO Market.
In 2016, Bittnet Systems became the first technology company in Romania to ever issue a corporate bond. Since then, six technology companies have made ten issuances, raising a total of EUR 14 million. At the end of 2019, more than half of the corporate bonds listed on the AeRO Market were issued by Technology companies (Figure 5.8, Panel A). Apart from technology companies, companies from industrials, health care and consumer cyclicals have also been using the AeRO Market to raise funds. Meanwhile, the Main Market has hosted a handful of companies from utilities and consumer cyclicals, apart from financial companies. Regarding the length of maturity, nearly all issuances on the Main Market have a maturity over five years, whereas on the AeRO Market almost 81% of issuances have a maturity of less than five years (Figure 5.8, Panel B).
References
[2] Çelik, S., G. Demirtaş and M. Isaksson (2020), “Corporate Bond Market Trends, Emerging Risks and Monetary Policy”, OECD Capital Market Series, Paris, http://www.oecd.org/corporate/Corporate-Bond-Market-Trends-Emerging-Risks-and-Monetary-Policy.htm.
[1] Cortina Lorente, J., T. Didier and S. Schmukler (2016), “How Long Is the Maturity of Corporate Borrowing?”, https://openknowledge.worldbank.org/handle/10986/25060.