Danes next up in Nordic corporate bond wave

Updated 10 November 2012

Danes next up in Nordic corporate bond wave

COPENHAGEN: Denmark’s corporate bond market is being brought to life as firms long reliant on banks seek to diversify their funding sources and exploit investor demand for yield and Nordic assets.
With many banks in the region restricting lending as they focus on building capital — Denmark’s biggest lender Danske Bank recently wrapped up a share issue to boost its buffers — Nordic firms are hunting out alternative sources of cash for refinancing or growth.
Some are also eager to cut their reliance on bank loans after finding themselves shut out of the market during the 2009 financial crisis, and as the euro zone debt crisis that has hobbled many European lenders persists.
Strong public finances and positive performances by the region’s companies have meanwhile drawn interest in Nordic bonds from investors who fear rocky equity markets but want better returns than those offered by low-risk government debt.
Data from fund tracker EPFR Global shows a threefold rise in flows into Nordic-focused bond funds in the year to date.
“We are starting to see a Nordic market which has been heavily dependent on bank financing, in a transformation phase towards more capital markets-based financing,” said Anders Engstrand, SEB’s head of debt capital markets.
Dealogic data shows Nordic issuance is not far off the record $34 billion reached in 2009 when the financial crisis caused a surge in issuance. There have already been 225 sales so far this year, up from 160 last year, but only 14 Danish issues.
“I sense there is a change in sentiment among companies and investors, and that we will see more issues in Denmark,” said Jens Frederik Nielsen, Danske Bank’s head of debt origination.
Banks say they are building up teams to provide investors with the credit research they need on new Nordic issuers, and that in Denmark alone as many as 50 new firms may consider tapping the market.
Until recently, Nordic issuance was largely limited to governments, banks, municipalities and big industrial firms. But with the imposition of tougher capital requirements under new rules aimed at safeguarding the global banking system, corporate lending has become less attractive for banks.
“Long-term financing for corporates is something that does not belong on a bank balance sheet,” Nordea Chief Executive Christian Clausen told Reuters.
Real estate and shipping firms getting the cold shoulder from their banks have already sold bonds in Sweden and Norway.
Denmark has a handful of big Eurobond issuers — shipping and oil group A.P. Moller-Maersk and wind turbine manufacturer Vestas — but its domestic bond market is almost non-existent.
That is likely to change. Eager to unlock much-needed funds for firms, the Danish government is seeking ways to attract more pension and insurance assets into bonds, including the possible bundling of new sales so they are bigger and more liquid.
The likes of Carlsberg and the country’s biggest issuer, state-owned DONG Energy, are keen.
“As a company that is located in Denmark and functions in DKK, we would very much welcome the opportunity to have the possibility of issuing in Danish crown,” said Lars Cordi, Carlsberg’s group treasurer.
DONG said the bond market is currently its most attractive source of financing. It borrows in euros and sterling but has considered selling debt in Swedish markets and would like to issue at home.
“If we can do more attractive, cheap financing in the domestic market, we will consider this,” said Kristian Borbos, DONG Energy’s lead investor relations manager, noting the advantage of diversifying both the currency and investor base.
This month, Nasdaq OMX will launch the First North Bond Market in Copenhagen and Stockholm — a trading platform which targets small and medium sized firms in a bid to address thin secondary market liquidity.
Food company Danish Crown recently closed a sale of bonds that will be listed in Copenhagen — the first in the local currency in nearly a decade.
SEB’s Engstrand sees strong double-digit growth in overall Nordic bond issuance next year, outpacing single-digit growth in continental Europe. As economies recover, more firms will be boosting spending and acquisition activity, driving on the market’s development.
A.P. Moller-Maersk said it would probably use bonds to fund part of its $14 billion investment program in the years ahead.
With low interest rates around the globe, and borrowing costs for Denmark itself in negative territory, these big, well-known issuers are likely to draw good global interest.
“When government bonds start yielding negative, investors are going to look out the risk spectrum and try to find corporates with better yields,” said Mikael Angberg, PIMCO’s head of Nordic business development.
“Institutions are hungry for yield.”

Iran sanctions shadow falls on smaller German banks

Updated 27 May 2018

Iran sanctions shadow falls on smaller German banks

  • Some German companies plan to press on with Iran dealings
  • German exports to Iran rose 15.5 percent last year

Germany’s biggest lenders have shied away from business with Iran after past penalties for breaching US sanctions, but smaller banks have leapt on opportunities afforded by the nuclear deal rejected by Donald Trump.

There are just months to go until a November deadline issued by Washington after the US president abandoned a hard-fought agreement that loosened business restrictions on the Islamic Republic in exchange for Tehran giving up its pursuit of nuclear weapons.

But some firms plan to press on in their dealings with Iran despite the looming threat of penalties.

“We will continue to serve our clients,” for now, said Patrizia Melfi, a director at the “international competence center” (KCI) founded by six cooperative savings banks in the small town of Tuttlingen in southwest Germany.

The center, which supports companies operating in sensitive markets like Iran or Sudan, has seen demand “rising sharply in the last few years, from firms listed on the Dax (Germany’s index of blue-chip firms), from all over Germany and from Switzerland,” she added.

German exports to Iran have grown since the nuclear deal was signed in 2015, adding 15.5 percent last year to reach almost €2.6 billion ($3.0 billion) after 22-percent growth in 2016.

Such figures remain vanishingly small compared with Germany’s €111.5 billion in exports to the US — its top customer.

Nevertheless, the KCI will “wait and see what the sanctions look like” before turning away from Iran, Melfi said.

Already, firms dealing with Tehran must take great care not to fall foul of US restrictions.

Transactions are carried out in euros, and the KCI does not deal with businesses that have American citizens or green card resident holders on their boards.

What’s more, products sold to Iran cannot contain more than 10 percent of parts manufactured in the US.

One of the most important inputs for the business is “courage among our managers” given the high risks involved, Melfi said.

Germany’s two biggest banks, Deutsche Bank and Commerzbank, avoid Iran completely after being slapped with harsh fines in 2015 over their dealings there, with Deutsche alone paying $258 million in penalties.

DZ Bank, which operates as a central bank for more than 1,000 local co-op lenders, is withdrawing completely from payment services there, a spokesman told AFP.
That left KCI to seek out the German branch of Iranian state-owned bank Melli in Hamburg.

Even that linkage could break if Iran’s biggest business bank appears on a US list of barred businesses as it has before.

Meanwhile, among Germany’s roughly 390 Sparkasse savings banks, business with the regime is mostly limited to producing documents linked to export contracts.
“We will be looking even more closely at those” in the future, a person familiar with the trade told AFP.

Elsewhere in the German economy, the European-Iranian Trade Bank (EIH) founded in 1971 is another conduit to Tehran.

Also based in Hamburg, it for now remains “fully available to you with our products and services,” the bank assures clients on its website, although “business policy decisions by European banks may result in short term or medium term restrictions on payments.”

Neither does the Bundesbank (German central bank) believe that much has so far changed for business with Iran.

“Only the European Union’s sanctions regime will be decisive,” if and when it is changed, the institution told AFP.

Any payment involving an Iranian party would have to be approved by the Bundesbank if things return to their pre-January 2016 state.

German banking lobby group Kreditwirtschaft has called on Berlin and other EU nations to clarify their stance — and to make sure banks and their clients are “effectively protected against possible American sanctions.”

KCI’s Melfi said time is running out for EU governments to act.

“Many firms just want to stop anything with Iran, since they can’t calculate the risk of staying,” she noted.

On Friday for the first time since the Iran nuclear deal came into force in 2015, China, Russia, France, Britain and Germany gathered in Vienna — at Iran’s request — without the US, to discuss how to save the agreement.