Norway Becomes Magnet for Riskiest Foreign Currency Bonds

Norway’s booming junk-bond market is attracting a growing number of international companies eager to issue in the AAA-rated country.

DNB ASA, Norway’s biggest bank, estimates that companies based outside the Scandinavian nation have now become a “major driver of volume.” In the six months through June, about half the high-yield debt issued in Norway came from companies with “weak or no links” to the country selling debt in currencies other than kroner, DNB estimates.

Norway, home to Scandinavia’s biggest junk-bond market, is drawing in issuers as record-low central bank rates across most of the developed world feed investor demand for riskier debt. Western Europe’s biggest oil and gas producer has established itself as an attractive market for high-yield issuers thanks to the infrastructure it’s created to help shipping and energy firms sell debt, according to Nordea Bank AB.

Norway has “a lot of exposure to typical high-yield industries, like oil and gas, shipping and offshore -- heavy asset industries which are typical for high-yield credits,” Lars Kirkeby, chief of credit at Nordea in Oslo, said by phone. “It’s quite easy for companies to issue bonds here, especially for foreign companies.”

Foreign currency issuance made up about 54 percent of the 48 billion kroner ($7.6 billion) of high-yield debt sold in the first half, according to DNB.

Forex Bonds

Two of this year’s three biggest high-yield sales were by companies based outside Norway. Oro Negro Drilling Pte Ltd, a Mexican oil services firm based in Singapore, sold a $725 million-note in January while London-based Genel Energy Plc issued a $500 million-bond in May.

Companies that don’t carry an investment grade rating -- defined as lower than BBB- or unrated -- issued about 53.1 billion kroner of debt in the seven months through July, according to Nordea. That compares with 61.4 billion kroner for the whole of 2013. Total corporate issuance -- including investment grade bonds -- year to date is 73.6 billion kroner.

The high level of issuance by unrated borrowers in Norway appeals to firms considering debt sales that aren’t tracked by Standard & Poor’s, Moody’s Investors Service or Fitch Ratings, according to Kirkeby.

The DNB High Yield Total Return Index rose 12 percent over the past 12 months. That compares with a 4.6 percent increase for Norwegian government bonds, according to Bloomberg Sovereign Indexes.

“Investors are on a hunt for yields,” said Kirkeby. “It will probably continue as long as liquidity is there.”