“We made our first Samurai sale in January and we will continue to tap into that market as well as other sources of funding,” Bjoern Erik Naess, chief financial officer at Norway’s biggest bank, said yesterday in an interview. “We’re active in the Eurobond market and we also plan to enter the U.S. funding market.”
DNB’s plans to step up sales show Norwegian issuers have emerged from the credit market turmoil sparked by the government’s November decision to wind down state-backed Eksportfinans ASA. Moody’s Investors Service responded by cutting the unit to junk, a move that sent yields on bonds of other Norwegian issuers soaring. DNB holds 40 percent of Eksportfinans and is itself 34 percent owned by the government.
The downgrade of Eksportfinans “created a lot of noise in the capital and funding markets for a couple of weeks in December, but seems to have now stabilized,” Naess said. “It was an overreaction.”
The yield on Eksportfinans’ 4.75 percent 1 billion-euro ($1.3 billion) note due June 2013 has eased to 4.39 percent, compared with a high of 10.46 percent at the end of November. Before the lender was cut by Moody’s on Nov. 22, the bond yielded 1.91 percent.
DNB’s 4.5 percent 2 billion-euro note due 2014 yielded 1.77 percent yesterday, compared with 3.27 percent at the end of November. The spread to the benchmark Eurobond curve widened to as much as 257 basis points at the end of November, versus about 139 basis points this week. DNB’s spread is smaller now than it was before Eksportfinans was downgraded.
The fallout of the export finance unit’s downgrade prompted DNB to stop a planned Samurai debt sale in December, before it last month returned to that market.
Japanese investors hold more than 1 trillion yen ($13 billion) of Eksportfinans debt, according to SMBC Nikko Securities Inc. The Japanese Securities Dealers Association in mid-January wrote a letter to ask Norway to lobby Moody’s to press the rating company to raise Eksportfinans from junk.
While Eksportfinans bondholders have seen their investments slump, DNB now has “good access” to credit markets “at competitive prices,” Naess said. “Last year we were one of the only European banks to sell covered bonds in the Australian covered bond market,” which the bank may tap again, Naess said.
DNB had 635 billion kroner ($110 billion) in issued debt securities at the end of 2011, up from 502 billion kroner at the end of 2010, the bank said yesterday.
“DNB has diversified itself and raised funding in several different markets,” said Espen Furnes, a fund manager at Storebrand Asset Management in Oslo. “This is a smart move, and although this is not necessarily the cheapest way of funding at the moment, it gives the bank more flexibility in funding.”
DNB sold 400 million pounds ($633 million) of eight-year senior unsecured bonds in January, while Kommunalbanken AS, a municipal Norwegian lender, increased a benchmark U.S. debt sale by 25 percent last week to meet demand.
The state-backed bank, also known as KBN, sold $1.25 billion in three-year AAA rated notes on Feb. 1, $250 million more than planned, Chief Executive Officer Petter Skouen said.
“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.”
Bond and currency investors in Europe have flocked to Scandinavia to escape the euro area’s debt crisis. Norway and Sweden, both rated AAA with stable outlooks, are among the world’s safest sovereign credits, default swap contracts show.
“DNB has fully utilized the opening in the funding window that opened this year and has already funded most of the year’s capital needs,” Furnes said. “This contrasts to the back end of last year, where there was only limited supply of funding available.”
DNB has managed to contain a decline in profits even as the bank faces a slowing economy in Norway. Fourth-quarter net income fell to 4.09 billion kroner from 5.35 billion kroner a year earlier, it said in a statement yesterday. That beat the 3.57 billion-krone average estimate of 12 analysts surveyed by Bloomberg.
“We are one of the best capitalized banks in Europe,” Naess said. “We are located in one of the world’s strongest economies here in Norway. We have a conservative business model and this should continue to be a very solid, robust bank.”
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