Dechert's International Capital Markets Team In Conversation With...

December 11, 2023

Vienna Stock Exchange

In the latest issue of Dechert’s international capital markets team’s “In Conversation With…” series, partner Jennifer Rees and associate Kerenza Kerslake sit down with Matthias Szabo and Dimitrios Tsaousis, the head of debt listings and senior relationship manager, respectively, at the Vienna Stock Exchange (“VSE”) to discuss their views on recent capital markets developments and the outlook for the future. In this issue, we discuss:

  • the increased popularity of exchange regulated markets, including the Vienna MTF;
  • the impact of recent market developments and expected future trends;
  • ESG-related issuances on the VSE and other ESG drivers; and
  • what’s next for the VSE?

The VSE and growth of exchange regulated markets

Dechert: The VSE currently has more than 15,000 listed bonds from over 880 active issuers, across 38 countries, totaling over €740 billion. This is a significant increase from 2019 levels when the VSE’s multilateral trading facility (the “Vienna MTF”) reported 1,929 listed bonds, with such growth coming notwithstanding recent periods of intense global market volatility as a result of the COVID-19 pandemic, the Russian invasion of Ukraine in February 2022 and the resulting energy crisis and inflationary environment. What have been the key drivers of the growth in listings on the Vienna MTF in the last two to three years?

Six-and-a-half years ago, we set up a strategy to expand our debt-listing business to reflect early feedback we received, and by identifying certain “pain points” in transactions we thought we could help to address. We understood that issuers were seeking cost-effective solutions to minimize execution risk and their time to listing. We implemented a listing process to cater to these needs, particularly on our exchange regulated market, the Vienna MTF.

Unlike regulated markets, which are governed by regulation at the EU or UK level, exchange regulated markets have far more flexibility on how to design their rules. We have taken advantage of this, and the pragmatic approach we’ve implemented has been very well-received, as we’ve been able to accommodate the needs of market participants in various sectors and for different security types.

Our approach is primarily to look at ourselves as a service provider rather than an authority, where we serve the market by making the listing process as seamless as possible.

Dechert: If you look back ten (or even fewer) years, the vast majority of ‘plain vanilla’ corporate bonds, sovereign and quasi-sovereign bonds, etc., were listed on regulated markets; and exchange regulated markets predominantly attracted asset-backed and other alternative securities. The acceptance of an exchange regulated market listing, such as on the Vienna MTF, seems to be more widespread now. What do you think has driven that?

VSE: Regulated markets have a strong traditional and historical background, but as rules become ever more complex at the EU level, many market participants are looking for alternatives and solutions to onerous disclosure requirements. Many issuers are now switching from a regulated market to an exchange regulated market simply because someone has questioned whether a regulated market listing is genuinely required, and the only reason it was being pursued is because that’s the way it was historically done.

This is particularly true when it comes to private placements, where issuers are thinking much more pragmatically and are increasingly asking themselves: “Why do I need to have a regulated market listing? What’s the benefit?” The listing must be prominent, but if you view any exchange website, not just ours, the difference between the two markets isn’t very visible. For example, when looking at a share or bond price, it is rare to notice which market it is on.

We were fortunate to recognize this trend and focus on the Vienna MTF early on, so we have been growing into the trend as it has developed. The Vienna MTF market is not something new, it was called the ‘third market’ previously and was already quite established, it just wasn’t well-known internationally. As interest in exchange regulated markets has grown, we’ve dedicated our efforts to promoting the Vienna MTF and attracting international attention. All asset classes had already been listed there before, so our job has just been to inform people about it and share the message that this offering exists.

Dechert: For UK issuers, the “quoted Eurobond exemption” (where debt securities are issued with certain characteristics that generally permit interest to be paid without withholding tax deductions) has been a factor in selecting a stock exchange (with the exchange needing to be a “recognized stock exchange”). Is this something that you’ve come across in relation to the listings of UK companies on the Vienna MTF?

VSE: Absolutely. That is an interesting one. There is still this quoted eurobond exemption, and you can look up the list of recognized stock exchanges designated by HMRC. Also, it is not just the recognized stock exchange, but the distinction between markets. So, what is considered to be a “recognized stock exchange” listing is usually a regulated market listing.

We queried this with HMRC in 2017. But, in 2018, the UK government made the position clearer by changing the tax law – they didn’t change the quoted eurobond exemption, but they introduced a new withholding tax exemption that applies to all European multilateral trading facilities, which are regulated by a recognized stock exchange. The VSE itself is regulated by the Austrian Financial Market Authority, which is an EU national competent authority and that has opened up the withholding tax exemption for securities listed on the Vienna MTF (as is true for many of the other exchange regulated markets in Europe). Despite this change occurring pre-Brexit, the legislation remains the same at present.

Recent market developments

Dechert: Given the recent periods of higher inflation, increases in interest rates and higher coupons in the fixed-income market, what main trends have you seen resulting from these general market influences? Do you think we are stabilizing into a “new normal”?

VSE: One of the trends that has been particularly noticeable in Vienna is the increased competition by banks for financing from non-bank direct lenders. Many private equity firms have their credit arms or credit divisions, and structure financing via listed bonds (to keep costs low and benefit from certain tax advantages). A lot of that is being listed on the VSE.

Rising interest rates have led to maturity extensions being renegotiated with investors or noteholders and an increase in liability management exercises (such as consent solicitations and tender offers). However, at some point, companies need more cash, and they have to refinance their debt, potentially with new debt coming in.

It appears that the general consensus in the market is that interest rates are topping out. The stabilization of inflation means that if issuers have the luxury of waiting another year or two until maturity, this may provide hope that interest rates will come down in the meantime. So, we think that if issuers can wait, they do.

Dechert: Another thing we’ve seen in recent periods is issuers considering newer forms of financings (ESG or Islamic financing, for example) than their traditional portfolios or trying to complete bespoke, one-of-a-kind transactions, either to reduce the coupon or gain access to new investor pools.

We note, for example, that a debt-for-nature swap was listed recently on the Vienna MTF. Have you seen more innovative transactions like that in recent periods?

VSE: We are noticing this more than before, although it’s not clear that there are substantially more such issuances. Another example of an innovative deal is a recent listing on the Vienna MTF of the world’s first gender bonds (AT1) from Turkey, and I think that because of how the VSE has grown historically, unique instruments like that tend to gravitate towards us.

Very onerous regulations can diminish, or even kill, creativity. At the Vienna MTF, we try to provide the space and infrastructure for market participants to come up with new structures and negotiate between issuers and investors, and then list the product with us. This flexibility, paired with pragmatism, is why these issuers have gravitated towards the Vienna MTF. People at the exchange are also keen to engage with and build solutions for these types of products, while making the securities visible through a listing.

Dechert: Do you think the approach the Vienna MTF team takes to the listing process (as compared to other exchange regulated markets) also contributes to attracting these types of mandate?

VSE: We are aware that we are the last link in the chain of a transaction, and, in this role, we want to see what’s going on in the transaction and guide our clients through the process. We have a genuine interest in the transaction taking place and often have increased enthusiasm involving an extraordinary case. We do not treat listings as “just another listing,” and we think that this shines through in our daily work.

It also helps that many of our team, including ourselves, come from the banking side, and not just from the investment banking or sell side. This financial experience helps us better understand what makes our clients tick, so we try to inject some of that into the process. It goes beyond our work ethic and influences the whole approach of the VSE. It is in our DNA.

This experience enables us to provide a high level of service to a range of customers. We’re eager not to paint ourselves into a corner: our rulebook offers a flexibility that benefits many different product-types, no matter if the issuer is from the emerging markets, the securities are retail bonds, or institutionally placed bonds across all rankings or ratings. This can really capture the imagination of advisors and law firms, such as Dechert, who engage with their clients on how to structure deals.

Our clients don’t have to worry about the listing because they know that, in Vienna, we can make it happen. If there is ever any doubt, we ensure that we are available on an ongoing basis.

Dechert: We can’t talk about market developments in the UK and EU without at least briefly talking about Brexit. Have you seen any impacts of Brexit on VSE listings from UK entities?

VSE: There has been a slight increase, but it’s hard to say whether this is because of Brexit, or if it is a result of natural progression and how we have established ourselves in the European ecosystem. But listings from UK entities definitely didn’t drop off a cliff as a result of Brexit. When we speak with stakeholders in London, it’s often about international cross-border transactions and European transactions that are advised by law firms in the UK, as English law is still the preeminent law for bond transactions. While we do see UK issuers, for the most part, these aren’t issuances by large public corporations but are smaller bonds in the mid-sized market.

ESG matters

Dechert: ESG bond volumes continue to increase globally, and ESG regulations generally, particularly in the EU, continue to become more voluminous and further developed. The VSE revamped its ESG segment last year. What has been the trend since? Are you seeing more listings with an ESG element?

VSE: When we first started our ESG segment back in 2018, it was suitable for the time it was in. Other than the ICMA principles, there was nothing out there. Then last year, when the ICMA Green and Social Bond Principles were updated and the EU taxonomy was released, we updated our ESG segment to reflect the latest developments. For a long time now, it is not a “nice to have” but a “must have” for an exchange to facilitate these ESG developments as an infrastructure provider.

The growth in ESG bond volumes listed on the VSE is largely due to the uptake in Central Eastern European issuances and activity. This region used to lag behind in that development, with Austria being the dominant player in the region, with the Republic of Austria doing several landmark ESG transactions. We are now also seeing ESG issuances, particularly by banks, from Czechia, Romania, Slovakia, and more of this is coming our way.

The Austrian government has also been an ally in this, with large sovereign ESG bond issuances in 2022 that were timed with the relaunch of our ESG segment. In total, more than €20 billion has been raised across 108 transactions from 31 issuers so far.

Ultimately, an ESG segment shouldn’t be something that sets an exchange apart from its competitors. Every exchange will have, and does have, the ability to have an ESG segment. However, with our segment successfully relaunching last year, our structure is particularly beneficial because once a listing is flagged as ESG, it doesn’t mean that another team takes over, so you do not have to reinvent the wheel. Our approach is that ESG sits as an umbrella over everything else.

Dechert: What do you require in terms of transparency and publication for ESG bond issuers? Do they have to provide copies of their annual reporting as part of their ongoing reporting commitments?

VSE: Yes, we publish issuers’ annual reporting on the exchange’s website. At the end of the day, people are eager to publish this data because it is available free of charge and not behind a paywall.

It is a big differentiator for us that we value privacy, but we have the flexibility of being able to report what the issuer is required to report and the investor needs to see. On the ESG front, given the nature of the segment, we feel it is incumbent to prove that the rules have been adhered to, as this is an important industry standard.

Dechert: The EU Council and Parliament recently approved the EU Green Bond Regulation. Are you expecting that this will increase the regulatory burden for the VSE? How do you address other ESG principles that are not the ICMA standards?

VSE: The existing rulebook for the ESG segment is designed already incorporating the EU Green Bond Regulation. Our ESG experts in the team will review the transactions we would like to include in our ESG segment, but we won’t need to immediately update the rulebook as it was flexibly drafted and designed to fit new developments unless substantial changes take place internationally.

At the end of the day, the rules of an ESG segment serve to block greenwashing, whether that is through the ICMA standards, climate-bond initiatives, the EU green taxonomy or another standard that is sufficient for the investors to be included in our ESG segment.

Dechert: In terms of the types of ESG issuances, green bonds continue to be the most widely issued and listed. Issuances of sustainability-linked bonds seem to have plateaued recently, with some well publicized claims of “greenwashing”. Are you seeing a mixture of listings across the different types of ESG products?

VSE: While green bonds are still the most significant, we are seeing issuers also making use of social, transition and themed bonds as a financing tool. Furthermore, sustainability-linked bonds have opened the door for “not so green” industries and companies to issue. However, issuers failing to reach the related KPIs came to realize that the reputational damage they suffer hurts more than the actual step-up in the coupon serving as a penalty. Generally speaking, this has probably led to a flattening in the growth curve of sustainability-linked bonds as issuers are now especially careful in using this instrument and cognizant of the reputational risk that may come with it. That said, we are happy to report that none of the sustainability-linked bond issues listed in Vienna have failed to meet their KPIs.

We still see listings of sustainability-linked bonds, including a €350 million issuance in October for Wienerberger, one of the world’s largest brick manufacturers.

Future initiatives and beyond the Vienna MTF

Dechert: Looking to the future and future opportunities for the VSE, is there one thing that people come to you saying: "I wish you did this"?

VSE: Not only “I wish you did this” but also “I wish you would continue to do this!” In some cases, we have been asked how we keep our level of service so high in the midst of such impressive growth. This is indeed a challenge we have taken seriously, and focus on, on an ongoing basis. So, our future initiative that is our top priority is to continue our growth while keeping the response times as low as possible and the level of quality as high as possible.

This is not something flashy or outward facing but is what we have set our sights on. On a more outward focus, we feel that we can start to intensify our efforts when it comes to the internationalization of our regulated market. What we would like to do as a first step is offer it as a viable option to issuers already listing on Vienna MTF where, at the moment, they may list on Vienna MTF but list regulated market listings elsewhere. We see this as not just upselling but adding additional value to our proposition. Needing to keep track of various requirements for an issuer that lists in more than one listing venue can be burdensome. That is really where we shine – we like to make things simple.


Dechert’s International Capital Markets Team would like to thank Matthias Szabo and Dimitrios Tsaousis, as well as the team at the Vienna Stock Exchange, for their contributions to this piece.

The authors would like to thank Alexandra Zintl for her contribution to this piece.


Previous Issues

  • In the latest issue of Dechert’s international capital markets team’s “In Conversation With…” series, partner Jennifer Rees and associate Nick Quarrie sit down with Arnaud Delestienne and Chiara Caprioli, director of international capital markets and member of the executive committee, and senior business development manager and sustainable finance expert, respectively, at the Luxembourg Stock Exchange.

    Click here to read the full article

  • In this issue of Dechert’s International Capital Markets Team’s “In Conversation With...” series, associate Amy Rees and partner Patrick Lyons sit down with Maurizio Pastore, Head of Debt and Funds Listing at Euronext Dublin.

    Click here to read the full article

  • In the first issue of Dechert’s International Capital Markets Team’s “In Conversation With...” series, associates Amy Rees and Nick Quarrie sit down with Shrey Kohli, Director of Fixed Income and Funds at the London Stock Exchange Group (LSEG), to discuss key trends in the debt capital markets in 2021 and 2020, as well as expected drivers for growth and change going forward.

    Click here to read the full article

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