With the onset of a prolonged period of high interest rates small and medium-sized enterprises will find it increasingly difficult to access capital, regardless of whether they need it for current liquidity/working capital or investments. Traditionally oriented towards banks, as is the case with most European companies, they think too little about alternatives such as the capital market.
The Progress platform of the Zagreb Stock Exchange was launched five years ago specifically for small and medium-sized enterprises (SMEs), but they still show no interest in listing their corporate bonds. Escon Partners, a domestic consulting firm led by Ivor Jelavić and Neven Vidaković, which specializes, among other things, in financial solutions through the capital market, decided to push things forward.
They found common ground with five domestic companies – potential issuers of corporate bonds – for which they organized road show. Of course, the goal is to find investors with excess liquidity who would invest in strengthening their business. It is not an insignificant fact that they themselves financed this by raising 500,000 euros from 27 investors (they will also invest in the presented companies), which has raised hopes that there are enough interested investors in the domestic market.
Established companies
The selected companies are already established in the market. EBC Technology is engaged in the production and sale of special devices and tubular electrodes for cutting and drilling at high temperatures of all types of metals, reinforced concrete, and stone both on land and underwater. The mobile device and tubular electrodes are patented innovations. The company is actively operating and offers many expansion opportunities due to the global uniqueness of its products. In addition to construction and industry, the mobile device is an ideal tool for assistance in various crisis situations for saving lives and property, in peace and in war; for example, they supplied devices to the Ukrainian rescue service. They are seeking opportunities on Progress because they need permanent working capital to refine the potential of their products. Through the issuance of bonds, they also offer potential shares in the company.
Mobility ONE is a platform for integrated solutions for vehicle fleets and overall mobile assets. In their presentation, they emphasized that they offer further enhanced IT platforms mobilityONE with active plans for expanding global sales in the B2B segment. Namely, it is a comprehensive platform for managing mobile assets that is fully integrated into existing business environments, allowing control over all mobile assets, processes, costs, and harmful emissions. Specifically, the platform offers greater utilization of the vehicle fleet (performing more tasks with fewer vehicles), complete transparency of activities, costs, and control of CO2 emissions, greater safety for vehicle users, more efficient digitized and automated business processes, significant savings in resources and costs of use and management. The company already has active licensing agreements with companies of both global and local character in the field of fleet management. They also offer shares in the company.
Drvo Trade has a modern sawmill (in which funds from HBOR have been invested), as well as expertise in the wood industry gained from many years of working experience in the industry. They have a demand for long-term working capital due to a significant increase in production and market demand and a longer cash gap period. They are a significant exporter with annual order contracts in India, Egypt, China, Vietnam, and the Emirates. They have annual contracts with Slovenian and Austrian forests to ensure regular supply of raw materials, and they charge for the wood for processing before the exported product is picked up.
Gluco Dent is an innovative company developing a revolutionary product in the field of oral hygiene for diabetics. They have independently invested in a three-year product development process that is currently in the final development phase – the development process ends with the finalization/preparation of project documentation. The market potential is extremely large, and upon completion of the development process and preparation of project documentation, the entire company will be sold. Additionally, a sales agreement with PwC speaks to the quality of their product and significant market potential. The planned exit is within three years, along with shares in the company.
Mall expert is a company with significant expertise in project management for the construction of large shopping centers and retail parks. They are entering a project to build accommodation for workers in Sv. Nedelja and need a share of funds to close the financial structure. As collateral, they offer investors an existing property that is already generating revenue. They also offer land, or new accommodation whose value exceeds the investors’ investments. What is extremely positive is that there are many companies in the market that need this type of accommodation, and they are already being recorded on the list when the other facility is completed. It is an ideal investment for passive investors.
A new perspective for companies
Regarding financial needs, the bonds of most potential issuers will have a term of up to four years, with a coupon interest rate of 5 percent or more and a targeted issuance amount of around one million euros. Final details are still being worked out, so more precise information is not available.
With such potential issuers, Morana Plejić, Progress market manager at the Zagreb Stock Exchange, hopes that by autumn a true small community of SME companies will come to life there.
– When we launched the Progress platform, we based it on an analysis of all European countries. The analysis showed that, for example, Sweden, Italy, and Spain have a well-developed market. Companies in Sweden, as soon as they reach a stage where they can raise financing, go to the stock exchange. In this way, they gain credibility, making it easier with banks if they need their financing. In Italy and Spain, companies have turned to the capital market because they either did not have enough collateral for banks or loans with high interest rates became unaffordable. This is slowly happening in Croatia as well, so companies that need capital for growth will have to turn to alternatives. After all, if a company issues corporate bonds, the interest rates are lower. Namely, banks do not have the infrastructure to finance startups, but once they enter a phase of stable growth and development, banks will want to follow them, and interest rates will be more adaptable if the company has a listing reference on the stock exchange – Plejić conveys to both investors and potential issuers.
Jelavić and Vidaković hope that with potential issuers showing such good business indicators and business references, investors will more frequently enter this type of investment, thereby opening a completely new perspective for companies that can expand even in inflationary-recessionary conditions in both domestic and foreign markets.
