Analysis: Danes next up in Nordic corporate bond wave

COPENHAGEN Thu Nov 8, 2012 10:21am EST

COPENHAGEN (Reuters) - 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 (DANSKE.CO) 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.

DANISH DIVERSIFICATION

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 (MAERSKb.CO) and wind turbine manufacturer Vestas (VWS.CO) - 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 (CARLb.CO) and the country's biggest issuer, state-owned DONG Energy DOENRY.UL, 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. A s 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 programme 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." (Editing by Alistair Scrutton and Catherine Evans)

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