Banks Ditched as Pesticide Maker Joins Bond Rush: Nordic Credit
Scandinavia’s biggest pesticide maker is joining a debt issuance spree in the region as Denmark’s government works on a plan to help companies sidestep banks.
Auriga Industries A/S (AURIB), based on the west coast of Denmark, is planning to sell bonds for the first time as soon as 2014, Chief Executive Officer Kurt Pedersen said in an interview. DSV A/S, the Nordic region’s biggest trucking company, last month said it’s close to its first bond sale and the country’s biggest issuers, including brewer Carlsberg A/S and utility Dong Energy A/S, have sold new debt this year.
“We’re following this market closely and I think that in two to three years we will be ready,” Auriga’s Pedersen said in a Nov. 21 phone interview. “It makes sense to get funding via the bond market, because it’s cheaper than having to go through a Danish bank first. It removes a link.”
Denmark’s small and medium-sized enterprises, which have issuance needs too small to attract most bond investors, will now get government help to obtain cheaper funding. Business Minister Annette Vilhelmsen said yesterday lawmakers in Copenhagen are preparing legislation that will support pooled issuance to help boost liquidity and attract more buyers. Any program will be market based, she said.
Effective interest rates on new bank lending to non- financial companies rose to 2.49 percent in September from 2.01 percent a month earlier, according to Denmark’s central bank.
Though the reported rates may seem low, they don’t reflect the drop-off in lending volume, according to the Confederation of Danish Industry. Bank lending to non-financial companies fell for 41 months in a row through September this year, plunging 31 percent since a December 2008 peak, according to data compiled by the central bank.
A government-appointed panel this week recommended setting up a trustee program as well as creating new short-term measures to support SMEs until a corporate bond market is up and running, the ministry said yesterday. The bond program will be ready in a year, Vilhelmsen was quoted as saying today by FinansWatch.
“Having a trustee will ensure more use of standardized documentation, which will benefit issuers and investors and lower the cost of the corporate bonds,” Thomas Hovard, head of corporate bond research at Danske Bank A/S in Copenhagen, said yesterday in a note. “We think the establishment of such an institution will be key for the development of the Danish corporate bond market.”
Failure to find new ways to provide funds to companies will prevent the kind of recovery needed to generate job growth, Kent Damsgaard, director of business economics at the Confederation of Danish Industry, said in an interview.
The shift means companies should be able to rely on bond markets to fund investments in machinery and plants, while bank loans will be reserved for short-term credit, Damsgaard said. Mortgage lenders will continue to fund commercial real estate purchases, he said.
“It’s now up to the government to show whether they want to create a better credit climate for the medium-sized companies or do they not,” Damsgaard said. The government and opposition parties “have said the right things for several years. Now it’s time to put some action behind those words,” he said.
Denmark’s non-financial companies have issued 33.6 billion kroner ($5.8 billion) in bonds this year, versus 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.
Nasdaq OMX Group Inc. plans to open a bond trading platform next month to meet investor and issuer demand. Nasdaq, which also runs the main stock exchanges in Stockholm and Copenhagen, says its inaugural bond on its First North Bond Market will be a 750 million-krone five-year floating rate note sold by Danish Crown A/S, the world’s biggest pork exporter.
Carlsberg sold 750 million euros ($966 million) this month of a 2.625 percent bond due in 2022. The note yielded 98 basis points more than the benchmark mid-swap rate at auction, from an initially-marketed 110 basis-point area, a person with knowledge of the sale said at the time. The yield declined to 2.73 percent at 12:42 p.m. in Copenhagen from 2.75 percent yesterday.
Auriga, whose Cheminova unit controls more than 2 percent of the global market for plant protection, has cut debt this year after its borrowing swelled three-fold from 2007 through 2011. The company extended by almost three years a 1.1 billion- krone bank credit line this quarter, giving it more financial leeway, Pedersen said.
A bond sale “won’t happen right now as we need to reduce debt first, but it’s definitely something we will look at,” the CEO said.
Auriga’s net interest bearing debt fell to 2.11 billion kroner at the end of September, down from 2.36 billion kroner a year earlier. The company needs to reduce debt further in 2013 “and then the next year, in 2014, we may be ready” to sell bonds, the CEO said.
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