On Tuesday, investor confidence in Germany’s economy fell more than expected with the ZEW institute’s index of expectations dropped to 10.3 in January from 15.7 in December.
(Jan 22): Companies that make up the backbone of the German economy are putting borrowing plans on hold, with sales of a local debt product dwindling amid a gloomy economic outlook.
Schuldschein debt sales have been slow this year, with just four deals totalling a combined marketed size of around €400 million (US$413 million or RM1.8 billion), according to data compiled by Bloomberg and people familiar with the matter. That’s about half the value of seven deals that were being marketed at this time last year, and a fraction of the more than €1.4 billion being sold at this point in 2023, the data showed.
Schuldschein debt is a promissory note that combines elements of both bonds and loans. It’s popular among companies in Germany and Austria seeking private debt and is a key funding route for so-called Mittelstand firms — the small and mid-sized businesses that are seen as the heart of Europe’s largest economy. And with Germany struggling, bankers say the pipeline for new deals remains thin.
“Companies are hesitant with investments at the moment due to uncertainties around the economy,” said Klaus Distler, the head of corporate DCM at Helaba. “We have a few deals in the pipeline right now but it remains relatively quiet on the Schuldschein front for the next few weeks.”
German gross domestic product fell by 0.2% in 2024, and things aren’t expected to get better anytime soon. The Bundesbank has predicted growth of just 0.2% this year and warned that another contraction is possible if US President Donald Trump follows through on his tariff threats. Borrowers are also likely to be cautious ahead of snap elections in Germany, due to be held in February.
On Tuesday, investor confidence in Germany’s economy fell more than expected with the ZEW institute’s index of expectations dropped to 10.3 in January from 15.7 in December. It underscores the persistent doubts in the country’s ability to escape its current bout of stagnation.
To be sure, Schuldschein represents a small portion of the overall market for corporate debt raising in Germany, with larger companies able to tap the broader investor base of the regular bond market.
And the market was already declining in 2024: Sale volumes last year were down 10% from the prior year, making the lowest total since 2021, according to data compiled by Bloomberg. Tight spreads and cheaper financing opportunities in the publicly syndicated bond market drew in larger companies which may have used the Schuldschein market in the past.
That dynamic may be continuing this year. Car-rental company Sixt SE, which has previously raised debt in the Schuldschein market, last week sold a benchmark five-year bond in the syndicated bond market, drawing in strong orders.
“The bond market is currently offering us attractive conditions for financing our further growth,” chief financial officer Franz Weinberger said. Sixt’s latest bond sale saw “the lowest spread in the history of the company for a bond issue.”
“However, this does not mean a complete shift away from the Schuldschein market. As we look ahead, we recognise the importance of both the bond and Schuldschein markets as key financing options offering both diversification and growth potential,” Weinberger said.
Respondents to a year-end survey expected headwinds in the Schuldschein market to remain in 2025, limiting new issuance to a maximum of €25 billion.
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