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Moody’s Wrong to Reduce Eksportfinans to Junk, Norway Says

December 02, 2011

Dec. 1 (Bloomberg) -- A decision by Moody’s Investors Service to cut Norway’s Eksportfinans ASA seven steps to junk betrays a lack of analysis and doesn’t reflect the state-backed unit’s ability to pay its debts, Trade Minister Trond Giske said.

Moody’s on Nov. 22 said Eksportfinans, created to help foreigners buy Norwegian goods, was no longer investment grade after the government four days earlier announced it was winding down the unit because it didn’t meet capital requirements. The decision sent tremors across global credit markets as far as Japan as investors tried to gauge the status of their bonds.

“Eksportfinans has never been more supported by the state and has a very sound business model, so I disagree with that downgrade,” Giske said in an interview in Oslo yesterday. “It’s not based on the best analysis. They have the wrong concept of how this company is funded and supported now.”

Eksportfinans investors holding $35 billion in bonds have since watched their holdings slump in value as Standard & Poor’s on Nov. 25 cut the lender five steps to BBB+ and warned of the risk of default under the terms of its euro medium-term note program. The sell-off was driven by fear and is little more than an overreaction, according to Rune Bjerke, the chief executive officer of DNB ASA, Norway’s largest bank and Ekportfinans’ biggest owner.

“I will just say that in today’s markets one needs to be extraordinarily careful when it comes to all kind of actions because with so much fear and so much uncertainty all players tend to overreact,” Bjerke said in an interview. “There’s a lot of fear out there and that fear has influenced the conditions around Eksportfinans.”

Yields Surge

The government’s decision and the subsequent downgrades also caused yields to jump on debt sold by DNB, and even on state-backed AAA rated lender Kommunalbanken AS.

The yield on Eksportfinans’ benchmark 4.75 percent 1 billion-euro note due in June 2013 has surged about 7.22 percentage points since the start of last week. The yield fell 70 basis points to 8.88 percent as of 11:44 a.m. in Oslo. It was at 1.66 percent on Nov. 21.

Yields on bonds from DNB, which is 34 percent owned by the government, have also risen. The yield on its benchmark 4.5 percent 2014 note jumped about 0.66 percentage point last week to 3.16 percent, and has since eased to about 3.07 percent. The yield on Kommunalbanken’s $1 billion bond due in October 2014 has risen 0.20 percentage point to 1.29 percent since last week, a record high.

Oil Fund

Norway, which has a $530 billion fund built from oil wealth backstopping its economy, has so far been shielded from the contagion spreading from Europe’s debt crisis. The nation boasts the world’s biggest budget surplus of any AAA state and Europe’s lowest jobless rate.

The government last month said it will wind down Eksportfinans, which was set up in 1962, after denying the lender permission to waive European capital rules limiting loans to single industries. Prime Minister Jens Stoltenberg said the government will instead support its export industry with as much as 30 billion kroner ($5.2 billion) in direct loans, administered by Eksportfinans until July. After that, a new government unit will be created to run the facility

Giske said the government’s facility will probably be able to provide loan terms “quite close to the present ones.”

“There’s no possibility of subsidizing a new institution but, of course, the Norwegian government has a very good rating and so a state-owned bank would probably get the best rating of all banks,” he said.

Eksportfinans, which had 205 billion kroner ($35 billion) in debt as of Sept. 30, will reduce that to 41 billion kroner by 2017, the company said in statement on Nov. 27. Eksportfinans is 15 percent owned by the Norwegian government, while 40 percent is held by DNB. Nordea Bank AB, the largest Nordic lender, holds 23.21 percent, and Danske Bank A/S, based in Copenhagen, owns 8.09 percent.

--Editors: Jonas Bergman, Tasneem Brogger.

To contact the reporter on this story: Meera Bhatia in Oslo at

To contact the editor responsible for this story: Tasneem Brogger at

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