The corporate bond market in Poland has continued to develop steadily throughout recent years and experienced marked growth in 2016. This is mainly due to the fact that the whole market continues to function in an environment of low interest rates.
The Polish National Bank reference rate has remained at the level of 1.5 p.p. The WIBOR 3M rate currently is 1.73% and the WIBOR 6M rate is 1.81%. In 2016. There has been continuing stagnation on the share market, which has had a positive influence on the debt market.
This year – 2017 – may be a bit more difficult for the corporate bond market than last year, mainly due to the gradual growth of the share market as well as the increase of the inflation rate. This may potentially lead state authorities to increase the reference rate, which would presumably have negative consequences for the bond market. However, for the time being there is no visible stoppage on the Catalyst market.
The financial market specialists at INC Investment & Consulting report that the value of corporate bonds listed on the Catalyst market (excluding state-related entities) amounted to PLN 42.18 billion at the end of 2016, compared to PLN 37.31 billion at the end of the preceding year. At the end of last year 373 corporate bond series issued by 130 companies were listed on Catalyst. The average nominal value of one series reached PLN 31 million compared to PLN 30 million in the preceding year.
The highest total values of bond series placed on Catalyst in 2016 were observed in the banking sector (Getin Noble Bank - PLN 2.46 billion, PKO BP - PLN 3.78 billion, and mBank - PLN 1.25 billion) as well as in the energy and resources sectors (Orlen Group - PLN 5.27 billion, PGNiG - PLN 2.50 billion, Tauron - PLN 1.75 billion, Enea and Energa PLN 1 billion each).
The Catalyst market remains the strongest and most influential corporate bond regulated market in CEE – twice as big as the Czech market, over four times larger than the Hungarian market, and almost four times larger than the Slovak market.
The numbers presented above show the significant and steady growth of only the Catalyst market itself. The market of unlisted corporate bonds is more difficult to calculate. Nevertheless, one thing is for certain: Development can be observed across the entire corporate bond market, both in terms of value and the growing share of bond debt across the entire debt market structure. As presented by the Michael/Strom brokerage house, back in 2009 the companies had PLN 222 billion of bank debt compared to only PLN 12.2 billion of bond debt. In 2012, the proportion was PLN 272 billion to PLN 31.4 billion. In 2014, the proportion changed to PLN 301 billion of bank debt and PLN 52.7 billion of corporate bond obligations. Summing up, the annual average dynamics of bank debt growth was only 6.3%, while the annual average dynamics of the corporate bond market reached 34%.
Our professional experience confirms the above trends, especially when it comes to the growing number and value of specialized corporate bond funds which offer tailor-made financing. Over the last year our office has assisted with over a hundred bond issues, a significant number of which involved private debt financing where the whole series was taken up by one or two specialized funds.
Such corporate bond/mezzanine funds have become an important alternative to bank debt, as, in exchange for a higher interest rate they can offer lower expectations as to security for the deal, a more flexible approach to the terms and conditions, and faster processing of the project. Funds are often able to finance projects which failed to meet the expectations of banks.
We are optimistic about prospects on the market. We observe a growing need for legal assistance in respect of bond issues, both regarding public and private offers to be placed on Catalyst as well as private tailor-made financing offered by corporate bond funds. With the growing bond market, we have been noticing increasing competitiveness on the corresponding legal market and higher client expectations – both positive factors that continue to improve market standards.
By Piotr Smoluch, Managing Partner, and Jakub Salwa, Partner, act BSWW
This Article was originally published in Issue 4.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.