Bloomberg News

Eksportfinans Says U.S. Hedge Fund Claims Japan Bond Default

December 28, 2011

(Updates with comment from analyst in fifth paragraph, S&P comment in ninth and 10th.)

Dec. 19 (Bloomberg) -- Eksportfinans ASA said a U.S. hedge fund investor claimed a default on the company’s Japanese bonds after the Norwegian government announced last month it would wind down the lender.

“On advice from counsel the declaration will be resisted vigorously,” the Oslo-based lender said today in a statement. “This is done on the basis that there is no default and the declaration is therefore of no effect. On this basis such purported declaration does not constitute a cross default under its other financial obligations.”

Norway’s government said last month it will wind down Eksportfinans, created in 1962 to aid exporters, after rejecting the lender’s pleas to sidestep European capital rules limiting large loans. The decision prompted Moody’s Investors Service on Nov. 22 to downgrade the company’s debt to junk while Standard & Poor’s cut its rating five levels to BBB+ and said the euro medium-term note program may be in default.

The downgrades hit credit markets as far as Japan as bond investors who thought they held notes backed by a AAA sovereign woke up to find their bonds were no longer investment grade. The company has about $35 billion in outstanding debt. Japanese investors hold more than 1 trillion yen ($12.8 billion) of Eksportfinans debt, SMBC Nikko Securities Inc. said last month.

Default Risk

Today’s declaration “highlights that there are still large uncertainties regarding the actual default risk on Eksportfinans program,” said Erica Blomgren, chief strategist for Norway at SEB Merchant Banking. “However, we would expect the government to step in, in such a scenario.”

The government, which has said the downgrades were “wrong,” announced a plan for a new 40 billion-kroner export finance program after Eksportfinans’ owners were unable to reach an agreement on how to capitalize the lender. Industry Minister Trond Giske said last week that the government, which owns 15 percent of the lender, is interested in its “success.”

The yield on Eksportfinans’ 0.89 percent Japanese bond maturing in June 2015 was little changed at 7.57 percent today, up from 0.64 percent on Nov. 21, according to data compiled by Bloomberg. The yield on the company’s euro-denominated 4.75 percent note maturing in 2013 rose 12 basis points to 6.18 percent as of 1:05 p.m. in Oslo.

“The risk of anyone claiming default has been there all the time and it did materialize today,” said Paal Ringholm, chief bond analyst at First Securities ASA in Oslo. “Long term, I still expect investors to get their money back, but this has the potential of putting pressure of the spreads.”

S&P Looking

The default claim may prompt S&P to further cut Eksportfinans’ rating, Jonas Shum, a credit analyst at SEB Merchant Banking in Oslo, said in an e-mail. Per Tornqvist, a director at S&P, declined to comment on whether today’s news would trigger a downgrade.

“The risk that you might have an early redemption and an acceleration of some of the issued debt is at the very heart of the credit watch, so obviously we will look into any aspect of that,” Tornqvist said today by phone.

Elise Lindbaek, a spokeswoman for Eksportfinans, declined to name the investor by phone today. “This is one investor only and it’s an investment firm that is focused on credit and special situations investments, so it’s a hedge fund.”

Eksportfinans is also owned 40 percent by DNB ASA, Norway’s biggest bank. Nordea Bank AB, the largest Nordic lender, owns 23 percent, and Danske Bank A/S 8.1 percent.

“We still believe, and we have the support of many legal briefs on that, that there is no event of default and we have a good liquidity situation and we are going to resist this declaration with everything we’ve got,” Lindbaek said.

Lindbaek said the declaration will result in a legal procedure in Japan if the investor so chooses.

--Editors: Jonas Bergman, Kati Pohjanpalo

To contact the reporter on this story: Josiane Kremer at

To contact the editor responsible for this story: Jonas Bergman at

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