«The Schuldschein market is becoming increasingly digital.»
More and more international companies have discovered the Schuldschein as a form of financing. Peter Riedel and Artur Kozlowski of Debitos explain in an interview how the market has changed in recent years and what role digitalization plays in this process.
In the past, Schuldscheine were primarily a «German product» – both among issuers and investors. More and more European players are now involved. Is this assessment misleading?
Peter: No, not at all. The internationalization of the Schuldschein market can be clearly observed. Of a total of 139 transactions, one in three went to a foreign company in Europe in 2018. That was an absolute record.
Artur: And in 2019, it just goes on like this. So far this year, half of the Schuldscheine issued have gone abroad. The non-European market is also becoming increasingly interested. In the first half of 2019, we even saw the first Asian transactions with a Chinese and an Indian company.
Around 13 billion euros were placed on the Schuldschein market in the first half of the year. How do you see the market today?
Peter: The Schuldscheindarlehen is very popular for companies at the moment, because investor interest is higher than ever due to the existing interest rate level. This also makes large volumes possible. What we are also observing: Traditional arrangers such as LBBW and BayernLB are facing increasing competition. Raiffeisenbank International from Austria and ING Diba in particular are now increasingly active in this market segment.
Who in Germany is primarily invested in Schuldscheine and why?
Artur: The main investors are the Sparkassen and Raiffeisen banks, but also insurance companies and pension funds. There are several reasons for this interest: On the one hand, the arrangers ensure a thorough selection of creditworthiness. As a result, the vast majority of companies are rated with investment grades. On the other hand, Schuldscheindarlehen continue to enjoy the privilege of being carried at amortized cost.
«The insolvencies of Carillon and Gerry Weber and the crisis at Steinhoff have shown that there is an increased market risk.» – Peter Riedel
The number of Schuldscheindarlehen issued continues to increase. Does this affect the quality of the investments?
Peter: The Schuldschein market got off to a very good start in 2019 with 88 issues in the first half of the year. If things continue as before, the previous year will be exceeded at least in terms of transactions. Foreign debtors seem to have played a major role in this. However, one cannot automatically conclude from the increased number that the quality of the investments is lower. Nevertheless, the insolvencies of Carillon and Gerry Weber and the crisis at Steinhoff have shown that there is an increased market risk. This will be reflected in the risk premiums in the future. We will also see stricter credit conditions.
Artur: A secondary market like the one we offer with Debitos increases investors’ flexibility – this can be absolutely useful. Foreign investors in particular do not share the buy and hold strategy for Schuldschein investments that has been customary in Germany to date. They want to adjust their portfolio if it makes sense. By the way, this shouldn’t be any different for German investors either.
In February 2018, Deutsche Telekom placed a EUR 50 million Schuldschein via the Credx digital issuing platform. Only two months later, the Austrian electricity group Verbund used the VC Trade platform in cooperation with Helaba for a 100 million euro deal. Debitos is also used as an online secondary market. Is this misleading or is the Schuldschein market becoming increasingly digital?
Artur: The market is definitely getting more digital – and the tech companies you mentioned are just a small selection of the companies that are making the market more digital. There is a lot going on here in arranging and distributing Schuldscheindarlehen. I think, however, that you can’t get around banks for the time being, especially with larger issues. Trust plays a decisive role here. The situation is different with sales. Here the standardised approach will soon replace the manual one.
Peter: We at Debitos want to give financial institutions the opportunity to sell positions within the shortest possible time if required. In view of the impending economic slowdown in Germany, the auditors will discuss the issue and ask for scenarios for fast put options at the best possible price. This is where we can help.
Part two of the interview can be found here.