German municipals to seek more access to capital markets

More German municipal housing companies are likely to seek capital market access as changing social housing policy increases their funding needs, Moody's Public Sector Europe said in a report published last month.

According to Harald Sperlein, a Moody's vice-president and senior analyst and a co-author of the report, "We expect housing companies to increasingly tap capital markets over the next few years, owing to growing housing demand in Germany's larger cities and because of the German government's renewed commitment to invest in social housing."

The growth of some German cities has led the public sector owners of social housing companies to draw up ambitious growth and investment programmes. However, given constraints on local government budgets, some of these investments are debt-financed at the company level, leading to these increased funding requirements.

“Traditionally, Germany's municipal housing investments have been principally funded by bank loans, but capital market instruments are becoming increasingly attractive for public entities who need long-term funding to match their assets," Mr Sperlein added.

This is because the recent tightening of banks' capital requirements has made long-term lending at competitive rates less attractive for financial institutions. Therefore, Moody's expects more social housing entities to tap the capital markets directly by issuing bonds and other financial instruments instead of raising bank finance, potentially matching the growth trajectory the rating agency has seen in the English housing association sector.

Moody's notes that the German social housing sector's role in delivering public policy implies strong government support and supervision, all factors viewed positively by the issuers and raters of credit. The German government's recently announced commitment to strengthening investment in housing and reviving social housing development would strengthen these credit positive ties, say the authors.