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Nasdaq Opens Danish Bond Exchange in Loan Drought: Nordic Credit

Nasdaq Opens Danish Bond Exchange in Loan Drought
Nasdaq says the first bond to trade on its First North Bond Market will be a 750 million-krone five-year floating rate note issued by Danish Crown A/S. Photographer: Brent Lewin/Bloomberg

The biggest exchange operator in the Nordic region is unveiling a new platform for corporate bonds as companies look for credit and investors search for higher-yielding Scandinavian debt.

Nasdaq OMX Group Inc., which plans to open its new bond exchange next month, is seeking to fill a funding gap that’s been created by banks retrenching amid stricter capital requirements. The exchange will also help the Danish government meet its goal of supporting small and medium-sized enterprises through measures including pooled funding.

“Banks, companies and politicians -- everybody -- are all saying access to corporate debt markets must improve,” said Nicolai Wallin, head of fixed income at Nasdaq OMX in Copenhagen. “Even the buy side wants better opportunities.”

The Danish government has promised to present a proposal before the end of the year to help small and mid-sized companies sell debt in an effort to counter a shortage of bank credit. Denmark’s regional banking crisis has claimed more than a dozen lenders since 2008, and the economy now faces its second recession in less than a year. Against that backdrop, SMEs, which employ about two thirds of Denmark’s workforce, have struggled to find the funds they need to grow.

Pork Bonds

Nasdaq, which also runs the main stock exchanges in Stockholm and Copenhagen, says the first bond to trade on its First North Bond Market will be a 750 million-krone five-year floating rate note issued by Danish Crown A/S, the world’s biggest pork producer.

Another two to three companies are considering issuing debt on the new exchange, which will set less stringent requirements for documentation and accounting standards than similar platforms used by larger issuers, according to Nasdaq. Investors are already showing interest.

“It’s definitely something we’ll be looking into,” said Morten Hansen, a fund manager who oversees 1 billion euros ($1.3 billion) in corporate bonds at Copenhagen-based BankInvest. “Even the unrated and illiquid bonds can be sold if the price is right. The question is whether investors want in at the margins that banks are envisioning for this market currently.”

Danske Bank A/S, Denmark’s biggest lender, will have a unit dedicated to underwriting debt sold by mid-sized Danish companies “up and running more or less immediately” once the government taskforce removes legal barriers, Lars Moerch, head of business banking, said in a Nov. 8 interview in London.

Investor Interest

Investors outside Denmark have shown long-term “interest in getting some Danish bonds on their books,” he said.

BankInvest, which is currently restricted from investing in non-rated corporate debt by its investment mandates, may consider easing that clause to invest in debt traded in the new First North market if volumes picks up, according to Hansen.

While Denmark is home to the world’s third-largest mortgage bond market, it’s a lightweight in corporate debt. That’s prompted larger issuers such as A.P. Moeller-Maersk A/S, owner of the world’s biggest shipping line, to go to Norway to sell bonds.

Denmark’s non-financial companies have sold debt for 33.6 billion kroner ($5.82 billion) this year, up from 18.3 billion kroner for all of 2011, according to data compiled by Povl Bak-Jensen, a director in debt capital markets at Nordea Bank AB in Copenhagen.

In Norway, 82 billion kroner ($14.5 billion) in corporate bonds had been issued as of Oct. 22, according to separate Nordea estimates. Norway, home to Scandinavia’s largest corporate bond market, has a more established market because many of the nation’s oil service companies use debt to finance offshore investments.

Credit Dearth

The Confederation of Danish Industry has warned that Denmark’s regional banking crisis is creating a dearth of credit, leaving less cash for businesses to invest. Denmark’s gross domestic product contracted 0.4 percent in the second quarter from the first and the confederation estimates output contracted again in the third quarter.

Denmark’s Chamber of Commerce wants the government to provide guarantees on loans to small and medium-sized businesses to help the industry ride out the economic decline, newspaper Berlingske reported today.

Yet even as growth falters, Denmark has emerged as a haven from Europe’s debt crisis as the government keeps its debt load at less than half the average for the euro zone. Demand for the krone, which is pegged to Europe’s single currency, has caused the central bank to cut its benchmark deposit rate below zero.

Haven Effect

Denmark pays about 27 basis points less than Germany to borrow over 10 years, and the country’s 3 percent note due November 2021 yielded 1.12 percent yesterday. The government charges investors to hold its two-year debt, which yielded minus 0.14 percent yesterday. The appeal of Denmark’s government bonds is rubbing off on its other debt markets.

“Investors will have an appetite for new issuances as low as 100 million kroner when this market matures,” Peter Lauridsen, head of SEB AB Danish bond operation, said in an e-mail. “This market needs to be driven by Danish institutional investors like we’ve seen in Norway to generate volume. If it gets off the ground we could see corporate debt of more than 40 companies trading on this platform in a few years.”

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