Nordic companies got the timing right this year as they stocked up on cheap debt before the market turned.
Companies, excluding financial issuers, have raised 11.1 billion euros ($12.3 billion) in debt in Europe’s common currency this year, almost reaching the total of about 11.7 billion euros they sold in all of 2014, Bloomberg data show.
Triggered by the European Central Bank’s record stimulus program, companies such as Statoil ASA piled into the Eurobond market to lock in low funding costs, and abandoned the comparatively more expensive U.S. dollar market.
“One of the main reasons for the high euro issuance has been the ECB’s QE program, which pushed down interest rates in euros to record levels and also weakened the currency,” said Louis Landeman, senior credit analyst at Danske Bank A/S in Stockholm.
But like other corporate issuers, Nordic firms have largely been absent from the primary market for a month now after volatility intensified and yields rose amid concern over Greece’s future in the euro area. The average yield on investment-grade Eurobonds has climbed to an eight-month high of 1.28 percent, according to a Bank of America Merrill Lynch index. It was at a record low of 0.85 percent on March 10.
“For issuers, yield and coupon levels aren’t as attractive now,” said Jonas Ranneby, head of credit strategy at SEB AB in Stockholm.
The borrowing spree looks to have been driven more by opportunism than by a need for funding.
“Issuance isn’t needs-driven as most Nordic corporates have been cash-rich for a number of years,” said Ranneby. “It doesn’t mean they don’t want to issue when yield levels are as low as they have been.”
Statoil was behind the region’s biggest transaction this year when it sold 3.75 billion euros of debt in four parts. Last year, Norway’s biggest oil and gas producer chose to issue debt in dollars when it raised $3 billion in five parts.
“We have done euro transactions several times over the last six years and we evaluate both the euro market and U.S. dollar market every time we consider a benchmark,” said Lars Erik Lund, a Statoil spokesman. “Our ambition is to maintain our financial flexibility, we are therefore always looking for attractive opportunities.”
Dollar-denominated sales from Nordic corporates have been plummeting in 2015, with only $500 million issued in the year to date. That compares with $4.3 billion last year and $6.8 billion in 2013.
U.S. dollar “funding is more expensive compared to euros given the dual combination of higher interest rates and expected continued dollar strengthening,” said Landeman. Issuers also need to factor in the likelihood of “rate hikes from the Fed on the horizon,” he said.
Norwegian oil companies, now struggling with lower crude prices, had been the biggest dollar issuers with $2.9 billion in 2014 and $6.2 billion in 2013, 67 percent and 90 percent of the total, respectively.
For now, there’s little to indicate companies will return to the dollar for debt sales as ECB measures ensure the euro remains a borrowers market.
For this to change, “the ECB’s QE program would probably need to come to an end and the U.S. economic recovery weaken so much that the market stops believing in forthcoming rate hikes,” Landeman said. “Something that currently does not appear very likely.”