Swedish Corporate Bond Market Grows As Bank Credit Tightens

Friday, 13 April 2012
Swedish companies are increasingly turning to the bond market for financing as access to bank credit has tightened since the autumn in the wake of the euro-zone debt crisis and tough new financial regulation, Danish bank Danske Bank A/S (DANSKE.KO) said Friday.

Compared with the crisis-struck euro zone, companies in Sweden still have decent access to bank funding, but it has become harder for smaller firms and capital intensive businesses such as property groups to get loans, Danske Bank's head of credit analysis in Sweden, Louis Landeman, told Dow Jones Newswires.

"We have seen a clear contraction since the autumn," Landeman said, but added that "during this period there has been an extreme credit contraction in Europe, and in the light of that, the situation in Sweden still looks relatively sound."
Danske Bank's "Credit Barometer" index fell to 57 in its latest twice-yearly study of Swedish credit conditions, conducted in March this year, compared with 68 in September, indicating a tougher funding climate, the bank said.
Stricter financial regulation such as the international Basel III capital requirements, which have been rolled out in the wake of the recent crisis to make the financial industry less risky, have forced banks to trim their loan portfolios, it added.
Capital intensive firms are increasingly raising their funds directly through the financial markets, Danske Bank said, noting that Swedish property companies issued 4.8 billion kronor ($711 million) of corporate bonds in the first quarter this year compared with SEK2.3 billion a year earlier.
This development mirrors the trends elsewhere in Europe. European companies have traditionally relied on bank financing, but during the first quarter borrowed more from the bond market than they did from banks, according to data provider Dealogic.
In Sweden, corporate bonds currently make up somewhere around 20% of the companies' financing, but in the long run that figure is likely to move towards the levels seen in the U.S. and recently on the European continent, Landeman said.
Companies such as real-estate group Klovern AB (KLOV.SK) and wind power firm Arise Windpower AB (AWP.SK) have recently entered the bond market with new issues, and the number is set to grow as banks' lending will remain restricted by tough new regulation, he added.
Because of the volatility on stock markets and low yields on government bonds, the demand for corporate bonds is also on the rise, said Landeman.
It will take time for Swedish corporate bond volumes to develop as the investor base needs to grow and institutional investors will have to build up capacity and analysis resources for the segment, he said, but added that the corporate bond market is attracting growing attention from investors.
News source: Dow Jones News

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