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Norway’s Eksportfinans Cut to Junk by Moody’s Amid Wind Down


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Norway’s Eksportfinans Cut to Junk by Moody’s Amid Wind Down

Business

Category: Financial / Investment

The issuer and senior-debt ratings of Eksportfinans, which  helps foreign investors buy Norwegian goods and services, were cut seven steps  to Ba1 from Aa3, Moody’s said today. The Oslo- based company had 192 billion  kroner ($33 billion) in outstanding debt securities at the end of September,  according its website.

“There might be some forced sellers” of Eksportfinans bonds,  Paal Ringholm, chief bond analyst at First Securities ASA in Oslo, said in a  phone interview. “As such, they are exposed to a loss if they have to sell the  bond with a discount.”

The government said last week it will prop up its export  industry with as much as 30 billion kroner in new loans to tackle the fallout of  Europe’s debt crisis. The move followed the state’s decision not to grant  Eksportfinans permission to sidestep European capital requirements limiting  concentrations of large loans and hamstringing the lender.

Spreads Balloon

The company’s 1 billion-euro 4.75 note due in June 2013  slumped 9.05 cents to 95.632 cents on the euro. The yield surged 6.23 percent to  7.883 percent as of 5:21 p.m. local time. The spread to the euro benchmark  widened to 832 basis points from 169 basis points. A basis point is 0.01  percentage point.

Eksportfinans will be wound down in “an orderly manner in  order to preserve the interests of all stakeholders,” and its financial status,  liquidity position and capitalization are “adequate to achieve this,” the  company’s owners, including Nordea Bank AB, said today in a statement.

“As Eksportfinans is being wind down, we perceive their  asset-liability mismatch to be decent, and under normal circumstances the  company should be able to repay their obligations through their maturing assets  with only potentially short-term funding gaps,” analysts at SEB AB said in an e-  mailed report. “Moreover, the company does hold asset resources that may be  monetized under eventual stressed liquidity situations.”

The lender’s difficulties may also sap income at investment  banks. Since Moody’s initial two-step rating cut on Oct. 28, Goldman Sachs Group  Inc. and Bank of America Corp., the two largest underwriters of Eksportfinans’  structured notes, have issued none of the securities that combine debt with  derivatives from the agency, according to data compiled by Bloomberg. The two  banks have underwritten $3.1 billion or about 95 percent of the company’s U.S.  structured notes since January 2010, raising $40 million in fees, Bloomberg data  show.

New Facility

Eksportfinans will manage the state’s lending facility until  July 1, when a new government unit will take over responsibility for the  program, Prime Minister Jens Stoltenberg said Nov. 18. The measures indicate  that “the government considers that Eksportfinans lacks the capacity to provide  a relevant service to the Norwegian export-finance industry, which is skewed  toward industries such as shipping, energy and other industries, which often  require large loans,” Moody’s said.

Norway, which isn’t part of the 27-member EU, relies on  exports for half its economic output, with more than 60 percent of its sales  abroad destined for Europe. Eksportfinans said this month it was in breach of  new European capital rules, forcing it to curtail lending. The company, which  provides government- backed loans, is 17 percent owned by the state. Norway’s  biggest lender DNB ASA, Nordea Bank and Danske Bank A/S also hold stakes,  Bloomberg data show.

Norway’s government is providing loans directly to exporters  after Eksportfinans and its biggest owners failed to raise enough capital to  help it boost lending, Trade and Industry Minister Trond Giske said last  week.

Business Model

“The government’s decision to relieve Eksportfinans of its  position as operator of the 108-scheme, over which it has had a 30-year  monopoly, has almost eliminated its franchise and business model,” Moody’s said.  “It also implies that the government lacks commitment towards  Eksportfinans.”

During the transition period until July 1, the government will  provide funds while Eksportfinans will manage risk, Giske said last week. An  exemption from European Union capital rules would require a renegotiation of  Norway’s agreement with the European Economic Area, which is unlikely to  succeed, he said. Norway isn’t part of the 27-member EU.

“The company is very well positioned for a controlled wind  down that preserve value in the company,” Eksportfinans Chairman Geir Bergvoll  said in a statement on Nov. 18. “Eksportfinans is solvent and liquid and will be  wound down over several years.”

The company’s subordinated debt and hybrid ratings were also  lowered to Ba2 from A1 and B1(hyb) from A2(hyb), respectively. The short-term  ratings were cut to Not Prime from Prime-1 and all long-term ratings remain on  review for downgrade, Moody’s said.

Source: Bloomberg / San Francisco Chronicle

Published: September 22, 2019