For any business, securing capital is vital in order to achieve commercial success. The most common ways of obtaining capital to finance a business’s growth and expansion are use of personal or family savings, holding back profit and assets, or for instance corporate loans and corporate credit cards. These are only a few of the financing options available to a business to enable it to operate and grow. On the other hand, standard investment practices are often adjusted to individual needs between the specific sectors in which particular businesses operate, and this causes a range of problems when a business seeks to access capital that might be available.
Hybrid financing, which combines traditional investment models and real investment options, gives businesses greater opportunities to obtain capital by fusing various types of activity with opportunities for investment that were not possible in the past. Hybrid financing is a form of business financing that comprises elements of both equity and foreign capital. It is mainly used to mitigate the risk to investors and optimize the costs of financing.
The following are the crucial elements of hybrid financing:
- A combination of debt and equity – financing is structured around elements of debt financing such as bonds and loans as well as elements of capital financing, such as share issues.
- Flexibility – it can be modified to suit a business’s needs, for example through issue of instruments that can be swapped for shares in certain circumstances.
- It involves lower costs than equity – because a portion of the financing is in the form of debt, the cost of capital is usually lower than in the case of a share issue alone.
- Less ownership dispersion – some hybrid instruments, such as convertible bonds, enable businesses to raise capital without instantly relinquishing control over the company.
Some examples of hybrid financing:
- Preferred shares: this is a special type of hybrid financing in which a company is required to distribute dividends to the privileged investors before distributing the common stock dividends. The fact these shareholders receive payment first minimizes the risk, increasing the chances that funds will be available if the company gets into financial difficulties.
- Convertible bonds – securities that are a cross between bonds and stock. The issuer (for example a joint-stock company) undertakes to pay interest and redeem the bonds, while the bond holder has a right, and sometimes an obligation, to exchange the bonds for stock in the issuer subject to specific conditions[1].
- Callable Bonds are debt instruments enabling the issuer to redeem bonds before they mature. The issuer may exercise this right for example if there is a drop in interest rates, and this makes it worthwhile to refinance the debt with cheaper financing[2].
- Subordinated bonds – debt with repayment priority, in the case of bankruptcy, lower than other creditors but ahead of stockholders. This is an advantage if the company gets into financial difficulties[3].
- Mezzanine financing is a form of hybrid financing that is a combination of debt and equity. It is used principally by medium-sized and large enterprises that are in need of extra capital but wish to avoid dispersing their shares or have limited access to bank lending in the conventional way[4].
The range of hybrid financing instruments might also include more complex financial instruments such as options and warranties[5], or for instance selected hybrid securities [6] (including derivative instruments) while at times crowdfunding is considered financing of this kind as well[7].
Is hybrid financing popular in Poland?
Hybrid financing is becoming increasingly popular in Poland, but is still not as common as the conventional means of obtaining capital such as bank loans and share issues. The popularity of this type of financing varies according to sector:
- Banks and financial institutions – mainly subordinated bonds, often issued by banks such as PKO BP, Pekao, and mBank, to reinforce tier 2 capital. In 2023, a number of large banks issued bonds of this type – for several million PLN.
- Large and medium-sized enterprises – in this case, it is mainly mezzanine financing that is popular in acquisitions (LBO, MBO), for example this is a means whereby private equity funds (Innova Capital, Abris Capital) finance firm buyouts and large companies issue convertible bonds to obtain capital without immediately dispersing shares.
- Startups and innovative firms.
- Equity crowdfunding is expanding rapidly due to platforms such as Beesfund and Crowdway.
- Venture debt (startup loans) is becoming increasingly accessible, although equity from VC funds is still the predominant form.
- The real estate market, where property developers often used hybrid financing (mezzanine financing or convertible bonds) to undertake large development projects.
- Investment funds that offer hybrid structures for commercial projects.
Hybrid financing is frequently used in property development and M&A, but also when a business wishes to avoid getting into excessive debt or prevent dispersal of capital.
Hybrid financing is still not the predominant source of capital in Poland, but is becoming more popular. Banks are making lending criteria more stringent, causing firms to look elsewhere; mezzanine financing or for instance convertible bonds provide greater flexibility. The ongoing steady growth in the private equity and venture capital sector means that more funds are making use of hybrid financing structures. Crowdfunding is growing at a regular pace – in particular, equity crowdfunding and P2P lending platforms are attracting individual investors. Entrepreneurs are also becoming more aware – businesses are realizing more and more the benefits of combining debt instruments and equity. Hybrid financing is a particularly attractive option for the following:
- banks and financial institutions,
- medium-sized and large enterprises (in particular in M&A),
- startups and innovative companies,
- property developers.
Hybrid financing is only one of a multitude of options for obtaining capital that a business needs to examine when seeking financing. It is important that financial managers develop the adequate knowledge to provide the financing for their firm to achieve success, with regard to providing funds for growth.
[1] W Polsce obligacje zamienne są notowane m.in. na rynku Catalyst (GPW), ale nie są tak popularne jak standardowe obligacje korporacyjne czy akcje. Emitowane są głównie przez średnie i duże spółki, często jako element finansowania rozwoju lub restrukturyzacji. W latach 2023 -2024 było kilka emisji obligacji zamiennych m.in. CI Games SE (czerwiec 2023 roku – kwota – 6 mln EUR), HiProMine S.A. (styczeń 2024 roku kwota – 20 mln zł), HiProMine S.A. (luty 2024 roku – kwota 15 mln zł).
[2] W Polsce obligacje z opcją call są wykorzystywane głównie przez spółki korporacyjne i banki. Można je znaleźć na rynku Catalyst (GPW), choć nie są tak popularne jak standardowe obligacje korporacyjne. W latach 2023 i 2024 na polskim rynku kapitałowym odnotowano kilka emisji obligacji korporacyjnych zawierających opcję call, m.in. Echo Investment S.A., R. Power S.A., Polenergia S.A., Grenevia S.A.
[3] Obligacje podporządkowane są popularne wśród banków (np. PKO BP, Pekao, mBank, Santander Polska), które często emitują je, aby wzmocnić kapitał Tier 2, czy firm ubezpieczeniowych i instytucji finansowych, które wykorzystują je do optymalizacji struktury kapitału oraz wśród większych spółek korporacyjnych – zwłaszcza tych, które nie chcą nadmiernie zwiększać swojego długu uprzywilejowanego.
[4] Mezzanine financing w Polsce jest stosowane głównie przez Fundusze private equity (Polish Enterprise Fund, Innova Capital, Abris Capital Partners), banki i instytucje finansowe (Europejski Bank Odbudowy i Rozwoju – EBOR, Bank Gospodarstwa Krajowego – BGK) czy specjalistyczne fundusze mezzanine – np. Syntaxis Capital, Mezzanine Management. W Polsce finansowanie mezzanine jest popularne w sektorach takich jak IT, przemysł, energetyka i nieruchomości.
[5] Opcje i warranty chociaż różnią się one swoją specyfiką, każde z nich ustala stałą cenę oraz datę lub zakres czasu, w którym inwestor może dostarczyć kapitał poprzez zakup akcji lub aktywów.
[6] Ta szeroka kategoria finansowania hybrydowego jest często dzielona na konkretne obszary, takie jak ryzyko towarowe, ryzyko walutowe, ryzyko stopy procentowej, a nawet obszar skoncentrowany na zmniejszaniu dysproporcji w stopniu uprzywilejowania między posiadaczami obligacji a akcjonariuszami. Stopy zwrotu z tego typu inwestycji są często powiązane z typowymi zmiennymi ekonomicznymi, takie jak cena towaru, stopa procentowa czy kurs walutowy.
[7] Crowdfunding nie jest klasycznym finansowaniem hybrydowym, ale w zależności od modelu może mieć pewne cechy zarówno kapitału własnego, jak i długu, co sprawia, że czasami bywa traktowany jako forma finansowania o charakterze hybrydowym. Możemy go potraktować jako finansowanie hybrydowe jeśli mówimy o crowdfundingu udziałowym lub crowdfundingu dłużnym, bo łączy cechy długu i kapitału własnego ale nie dotyczy to crowdfundingu donacyjnego i crowdfunding nagrodowy, bo nie ma elementu zwrotu środków ani inwestycji.
