Eksportfinans Stigma Fades as Kommunalbanken Boosts Bonds
The flight from Norwegian credits triggered in November by the forced wind-down of Eksportfinans ASA is showing signs of reversing.
Kommunalbanken AS, a municipal Norwegian lender, raised a benchmark U.S. debt sale by 25 percent this week to meet demand. The state-backed bank, also known as KBN, sold $1.25 billion in three-year AAA rated notes yesterday, $250 million more than planned, Chief Executive Officer Petter Skouen said. The 1 percent note sold at 75.1 basis points more than benchmark government yields.
“We got in some very interesting investors, a lot of the investors were actually public institutions, central banks and so forth,” Skouen said in an interview. “It seems we have been sort of decoupled from the Eksportfinans situation. Investors see the difference between KBN and Eksportfinans.”
Norway’s government stunned markets in November with its plan to wind down the partly state-owned Eksportfinans, prompting Moody’s Investors Service on Nov. 22 to downgrade the debt to junk while Standard & Poor’s cut its rating five levels to BBB+. The downgrades sent tremors through bond markets as far as Asia as investors balked at the changed status of their bonds. Japan, Kommunalbanken’s main market, was slammed shut on Norwegian issuers after investors were saddled with losses.
The yield on a 2.875 percent $1 billion Kommunalbanken bond due in October 2014 rose about half a percentage point to 1.63 percent in December after the Moody’s downgrade of Eksportfinans. It has since eased to about 1.11 percent.
Norway’s biggest bank, DNB ASA (DNB), which owns 40 percent of Eksportfinans, last month became the first European lender to sell Samurai bonds in three months. DNB sold 65 billion yen ($854 million) of 1.91 percent five-year bonds on Jan. 27. The offering priced at 140 basis points more than the yen swap rate. That compares with a 60 basis point spread paid in July by Banque Federative du Credit Mutuel, a French lender with the same credit rating.
The downgrade to junk of Eksportfinans derailed DNB’s original plan to sell the notes Dec. 8. Samurai bonds reported their first annual loss in three years as the woes added to concerns the European debt crisis may drag the global economy into a recession, Bank of America Merrill Lynch index data show.
“Some of the Japanese investors don’t appreciate the Eksportfinans situation because Eksportfinans sold a lot of bonds in the Asian and Japanese market,” said Skouen, who was in Tokyo last week. “Some investors said they didn’t want to have anything to do with Norway, but they were in a fairly big minority.”
KBN got 46 percent of its funding from Japan in the first half of last year, through the Uridashi market. Uridashi are bonds issued outside of Japan and sold to individual investors in the country, while Samurai bonds are sold in Japan by foreign governments and companies.
Skouen said the Japan Securities Dealers Association has sent a letter to the Norwegian government and Eksportfinans to ask them to take measures to raise the rating of Eksportfinans to “at least an investment level so that the damage in Japan would be less.”
Elise Lindbaek, a spokeswoman for Eksportfinans, confirmed receipt of the letter while declining to comment on its content.
“We wanted to say Japanese investors are concerned because two rating companies downgraded Eksportfinans,” Atsushi Sakiyama, spokesman for JSDA, said by phone today. “Also, there can be an impact on Kommunalbanken. We asked them to keep talking to rating companies. If big share holders including the government make it clear that they support Eksportfinans properly or complement its credit, Eksportfinans can be upgraded to an investment level.” The group declined to show Bloomberg News the letter.
The government said it decided to dismantle Eksportfinans, created in 1962 to aid exporters, after rejecting the lender’s pleas to sidestep European capital rules limiting loans to single industries. Under the new regulations, the company would have had to increase capital levels fivefold, according to Standard & Poor’s, which is currently reviewing whether Eksportfinans is in default on its euro medium-term notes.
Norwegian Finance Minister Sigbjoern Johnsen said he didn’t want to comment on the content of the letter or the government’s assessment. The government is considered whether to publish the letter, he said.
“We’re following the situation very closely as we have done since we have started the work on establishing this scheme for the exporting industry,” he said. “The day-to-day management of Eksportfinans is the responsibility of the present owners and the administration in Eksportfinans and I think they have a good handle on this.”
Norway has defended its move as necessary to safeguard the export industry and said the lender still has the backing to honor its obligations. Industry Minister Trond Giske said on Dec. 6 that the company is “strong, solid and an important tool for the Norwegian government in ensuring the export industry’s good financing.” Asked whether there may be a default, Giske said “that is not up to me to decide. I don’t think the downgrade is justified.”
Eksportfinans is 15 percent owned by the Norwegian government. DNB holds 40 percent, while 23.21 percent is held by Nordea Bank AB (NDA), the largest Nordic lender. Danske Bank A/S (DANSKE) in Copenhagen owns 8.09 percent.
Kommunalbanken issued about $23 billion in debt last year, up from $21 billion in 2010, Skouen said.
“If we were able to fund ourselves with somewhat longer maturities I would expect that we would be somewhat below $20 billion this year because we also are forecasting a somewhat lower loan demand or lending for 2012,” he said. “I think we will end up between $18 billion to $20 billion this year.”
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