Bloomberg News

Eksportfinans Cut to Junk at S&P on Waning State Backing

February 15, 2012

(Updates with comments from analysts in fifth and 15th, S&P analyst in ninth paragraphs.)

Feb. 15 (Bloomberg) -- Eksportfinans ASA, which is being wound down for breaching capital rules, was cut to junk after the Norwegian government indicated it probably won’t provide further support to the unit, Standard and Poor’s said.

The Oslo-based lender was cut to BB+, the highest non- investment grade, from BBB+ and was placed on negative outlook, S&P said. It was removed from credit watch. S&P will no longer rate Eksportfinans as a government-related entity, it said.

“After discussions with the Norwegian authorities, we are of the view that there is little current government willingness to provide additional extraordinary government support,” S&P said. “We now view Eksportfinans as having a limited public policy role with a limited link to the Norwegian government.”

Norway shocked credit markets around the globe with its Nov. 18 decision to wind down partly state-owned Eksportfinans. Moody’s Investors Service on Nov. 22 cut the lender, which has about $35 billion in bonds outstanding, to junk while Standard & Poor’s days later lowered its rating five steps. The downgrades sent tremors through bond markets as far as Japan, where investors hold more than 1 trillion yen ($12.7 billion) of Eksportfinans debt, including its Samurai and Uridashi notes, according to SMBC Nikko Securities Inc.

Pressure on Pricing

“There could be some modest pressure on the bond pricing, but nothing like we experienced last year,” Paal Ringholm, head of credit research at Swedbank First Securities, said in an e- mail. “Having said that, this confirms the second effect of a rather politically messy process, which has resulted in a fragile funding situation.”

The yield on Eksportfinans’ 4.75 percent 1 billion-euro note maturing June 2013 rose to 5.24 percent as of 1:22 p.m. in Oslo, from 4.61 percent yesterday, according to generic Bloomberg prices. The yield soared a record high on Dec. 1, to more than 9 percent, after Moody’s cut the lender to junk.

The government has said it decided to dismantle Eksportfinans, created in 1962 to aid exporters, after rejecting the lender’s pleas to sidestep European capital rules limiting loans to single industries. Under the new regulations, the company would have had to increase capital levels fivefold, according to S&P.

EMTN Program

The rating company in November said the government’s decision to wind down the unit meant its euro medium-term note program may already be in default. Deutsche Trustee Co., the trustee of Eksportfinans ASA’s EMTN program, said Dec. 27 it has received certificates from the company “in a form satisfactory to it certifying inter alia that no event of default” has occurred. The trustee said then it didn’t propose taking “any further action.”

“The EMTN program is for the time being off the agenda,” said Per Tornqvist, an analyst at S&P in Stockholm, in a phone interview today. “It is because the trustee is of the opinion that no default has occurred, which is material to the holders of the bonds. However, that is not the end of the story.”

S&P has “expressed concerns about the funding profile, which is very complex and contains a considerable amount of structured bonds with related derivatives and obviously this portfolio is a driver for our assessment of the risk position in particular of Eksportfinans,” Tornqvist said.

Eksportfinans said in a statement today it has a “good liquidity situation and a sold capital base.”

Defending the Move

Norway has defended its move as necessary to safeguard financing for the country’s exporters and said Eksportfinans still has the backing to honor its obligations. Industry Minister Trond Giske said on Dec. 6 that the company is “strong, solid and an important tool for the Norwegian government in ensuring the export industry’s good financing.” Asked whether there may be a default, Giske said “that is not up to me to decide. I don’t think the downgrade is justified.”

Officials at the Trade Ministry couldn’t immediately be reached via e-mail or phone for a comment.

Eksportfinans is 15 percent owned by the Norwegian government. DNB ASA holds 40 percent, while 23.21 percent is held by Nordea Bank AB, the largest Nordic lender. Danske Bank A/S in Copenhagen owns 8.09 percent.

Jonas Shum, a credit analyst at SEB Merchant Banking in Oslo, said S&P’s cut will force investors who can’t hold junk securities to sell, adding that this has the potential to affect bonds of the company’s owners as well.

We’re Surprised

S&P’s conclusion on the extent of government support “is from our perspective, different than the signals that the Norwegian government has given to the press over the recent months,” Shum said in an e-mailed reply to questions. “We don’t know if the government has changed their mind. But obviously we are surprised.”

The turmoil had pushed up borrowing costs for Norwegian issuers including DNB, which was forced to cancel a sale of Japanese bonds in December. Norway’s largest lender was able to return to debt markets last month, when it sold bonds to Japanese investors. The Japanese Securities Dealers Association in January sent a letter to the Norwegian government to ask it to take measures to raise the rating of Eksportfinans.

DNB spokesman Thomas Midteide declined to comment today.

Ringholm at Swedbank First Securities said that S&P may be too “bearish” in its view on how much support Norway’s government will provide. “I agree that there is little current willingness but in a more stressed scenario they will provide support,” he said.

--With assistance by Adam Ewing, Editor: Jonas Bergman, Tasneem Brogger.

To contact the reporter on this story: Josiane Kremer in Oslo at

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

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