Tougher risk evaluations mean fewer companies issuing commercial paper

The number of domestic companies participating in Poland's commercial paper (CP) market has dropped steadily since the middle of 2001, a trend bankers and analysts expect to continue for the rest of this year. CP, usually short-term debt with one- to three-month maturities, accounted for 68.7%, or zł. 12.4 billion ($3 billion), of the total Polish debt market through the second quarter of this year, according to ratings agency Fitch Polska. That amount is zł. 1 billion ($244 million) more than in the same period last year. But bankers and analysts said that despite the increase, the number of issuers has dropped from 333 to 292. Firmer standards by banks and investors in appraising risk has made it tougher for corporations to issue CP, analysts said. "In fact, this is bad for (companies)," said Arkadiusz Wicik, a Fitch analyst based in Warsaw. "It used to be easier than more expensive bank loans." Companies needing cash may issue CP rather than bank loans, which are usually several basis points more expensive. But given banks' more stringent risk evaluations, some regular CP issuers are faced with increased capital costs similar to those of a bank loan. In many cases, banks are refusing CP programs outright, analysts said. Still, this doesn't spell doom for the CP market in Poland since CP continues to account for the largest chunk of the debt market. The financing environment would be tougher, bankers said, but banks are still fond of companies with robust cash flows, especially those with western ownership. Volkswagen Bank Polska, mobile operator Polkomtel, Rheinhyp-BRE Bank Hipoteczny and J.W. Construction Holding launched the four largest CP programs in the first half of this year totaling zł. 1.685 billion ($411 million). Volkswagen's program alone reached zł. 1 billion. A CP program, as opposed to an issue, is an agreement with banks that allows, but does not oblige, the company to issue a certain amount of commercial paper over a period of time. Banks are actively pursuing CP business. Bank Handlowy, Bank Pekao, BRE Bank and ING Bank Śląski are among the most active CP arrangers in the market. Fitch has kept a close eye on the market since last year. "We saw (the drop) as a trend from the end of last year," Wicik said. "There were problems with the credit profiles of issuers, and some are having trouble with the economy and market sentiment globally." Bankers do not expect a mad rush of companies launching CP programs once the economy picks up. "I don't expect that the number (of issuers) will increase," said Arkadiusz Bubak, the head of local debt origination at ING Bank. But as the economy improves, those companies with programs already in place would flood the market with their paper since some highly rated issuers have not yet completed their CP programs, he added.