The perception of Nordic borrowers as small fry is outdated. True, issuers in the region have traditionally enjoyed the rich pickings of their domestic banks and investors. But this is changing. Consolidation is accelerating in Scandinavia and many large borrowers have outgrown their domestic market. Investors keen to exploit new potential are eyeing the Nordic credit story and dealers believe they won't be disappointed. Non-syndicated issuance by Danish, Finnish, Icelandic, Norwegian and Swedish issuers combined, was $26.71 billion last year - a $10 billion increase on 1998. Tony Lindlof, deputy-head of debt capital markets, at Handelsbanken Markets (Handelsbanken), predicts issuance by Nordic borrowers will pick up speed as domestic funding becomes increasingly limited. He says: "Many Nordic borrowers are too big for the banks and their lending capacities. And the Swedish domestic MTN market is too small for larger corporates and banks. It used to be cheaper to borrow domestically, but Swedish investors have taken a look at the international markets and seen the spreads. As a result domestic levels have come more in line with them." Dealers expect that the trend for consolidation in the Nordic region will affect the market. Newly merged entity MeritaNordbanken is likely to increase its issuance to fund a possible takeover of Christiania Bank. Justin May, director, global origination at ABN Amro, says: "We're definitely going to see more names out of the region, particularly Sweden. Much issuance by Nordic borrowers will be driven by M&A activity." An increase in corporate signings from the Nordic region is also expected. Klaus Svendsen, vice-president, Euro-MTNs at Morgan Stanley Dean Witter (MSDW), says: "Scandinavian borrowers traditionally have been the major banks and sovereigns, but more corporates are coming on board now." In March 2000 Swedish law will let companies buy back their stocks. Lindlof, at Handelsbanken, says: "Corporates are cash rich so they don't have great appetite to enter the market at the moment. But this could change in March. Issuance may increase from corporates looking to fund buy-backs." Norwegian law stops local authorities from issuing debt internationally. But Kommunalbanken, a state-owned bank, will use its euro2 billion ($1.95 billion) facility, signed last month, to provide funding for these municipalities. Thomas Moeller, finance director at Kommunalbanken, believes it can be hard for new Nordic credits to get recognition and says he sought advice from other borrowers before signing. Yet, he is concerned that with growing competition many Norwegian borrowers will be left out in the cold. He says: "This market is for really good credits and good names. I don't know how many Norwegian borrowers will be able to access the market in 2000. Many don't have a rating and for this market a rating is crucial." All new borrowers strive to stand out in the pack. And for unknown Nordic credits the battle can be even harder. FBA Icelandic Investment Bank (FBA) was a novice in international capital markets when it signed its programme, in 1999. And as many investors don't have lines open for Icelandic names, the issuer had its work cut out. But Sigurdur Nordal, senior funding manager at FBA, is delighted with its success. He says: "We've been totally focused on this market for our funding in 1999. Since only very few of our investors have bought paper from an Icelandic credit before, we placed a high value on reaching new investors. It's also important to work with dealers, to be flexible on structures and quick in responding to ideas." And FBA's activity has had much wider scope. Svendsen, at MSDW, says: "FBA has managed to diversify and, at the right price, access investors in Japan and Europe. Many of these investors have been new not only to FBA, but to Iceland as a region. So FBA has been able to expand the total credit available to Icelandic borrowers." Its strategy will no doubt be an inspiration to others. Nordal says: "Given FBA's success, I would not be surprised if other Icelandic borrowers are following our performance and even considering the market for themselves." Merrill Lynch traded $99.9 million for FBA last year. Mike Bransford, associate, Euro-MTNs at Merrill Lynch, admits more work was required to get results. He says: "For new borrowers we have to play a bit harder on the ground. But there is value out there. FBA was not a well-known name, so it was more difficult for them in the beginning. But with hard work it can be done." More signing activity will heighten competition, but there is a positive side. Per Akerlind, treasurer at Svensk Exportkredit (SEK), the most active Nordic borrower in 1999, believes a surge in issuance from Nordic borrowers will attract the attention of investors throughout Europe. Akerlind says: "Scandinavian corporates have achieved good terms in their borrowing domestically, and to some extent from the international markets, but I think they will concentrate on broadening their investor base now. And, as more issuers sign, investors will increasingly focus on this area. It is interesting to note that four or five years ago, London banks reduced their focus on Scandinavia because it did not generate enough good business. This is definitely changing again."
August 04, 2000
