Bloomberg News

Swedish Government Ready to Aid Corporate Bond Market Drive

February 24, 2012

(Updates with stock index in 10th paragraph.)

Feb. 23 (Bloomberg) -- Sweden’s government said it’s ready to help the financial industry create a bigger corporate bond market as companies struggle to find alternative funding sources to compensate for a lack of bank credit.

“It would be good if we in Sweden took more steps toward a larger, more transparent corporate debt market,” Peter Norman, financial markets minister, said in an interview in Stockholm. “The financial industry has made a lot of money by trading equities and government debt so there’s been no real drive” to expand in other markets, he said.

Swedish companies have relied on banks for about 80 percent of their funding, versus 30 percent for U.S. firms, according to Mats Carlsson, the head of investment bank Pareto Ohman AB. With the country’s lenders facing some of the world’s toughest capital rules from next year, bank financing is becoming more expensive. That’s putting pressure on companies to look elsewhere for funds.

Finding investors may prove difficult, according to Daniel Sachs, chief executive officer at Proventus Capital Partners, a private firm that invests in bonds and loans. He says Sweden lacks liquidity, transparency and standardization in corporate bonds to attract more investors.

Sachs teamed up two years ago with former Nasdaq OMX Stockholm Chief Executive Officer Erik Thedeen, urging the industry and regulators to develop the corporate debt market.

Issuer Supply

Now, Norman says the government is willing to join the collaboration to spur growth in a market where supply from the issuer side is set to surge.

The Stockholm exchange is working on a project to develop corporate bond trading, Mikael Estvall, head of fixed income in Sweden, said by phone. Talks with participants have shown there’s plenty of demand for corporate bonds, he said.

“Demand will gradually increase,” said Anna Ringby, head of Nordic fixed income in Stockholm at asset manager Catella. “The driving force is more investors, both small and big, are trading corporate bonds more actively. In the past it’s mostly been large investors investing on a buy-and-hold basis, which doesn’t support liquidity.”

So far this year, corporates, banks and municipalities have issued 85 billion kronor ($12.8 billion) in krona-denominated bonds, bringing sales to 28 percent of the amount sold in 2011, according to data compiled by Bloomberg. The figures also include foreign issuers such as local German states and the European Investment Bank.

Outperformance

Swedish benchmark stocks have outperformed their European peers. Sweden’s OMX 30 Index is up 11 percent this year, versus an 8 percent gain in the Stoxx Europe 600. Sweden’s all-share index, which has 281 members, has surged 12 percent in the period. The OMX 30 Index slipped 0.3 percent today, versus a 0.1 percent decline in the Stoxx Europe 600.

Kloevern AB, a Swedish real estate company, today said it sold 500 million kronor in three-year unsecured bonds.

“Interest in other forms of financing has increased as liquidity in the banking system has diminished,” Rutger Arnhult, the company’s chief executive officer, said in a statement. “We’re very satisfied with the interest in Kloevern’s bond and can definitely think of using this possibility again.”

Among the main Swedish corporate issuers were Securitas AB, a security and alarm company, which last month sold 400 million kronor in three year notes. TeliaSonera AB sold 1.1 billion kronor in debt last month. The government wants any corporate debt issuance to be exchange based, Norman said.

Market Initiative

“Trading securities on the stock exchange is a good thing in general and corporate bonds would fit well,” he said.

According to the Financial Supervisory Authority, the onus is on the industry to develop a corporate debt market.

“We’re positive to any initiative, but the demand really needs to come from the market itself,” Christina Ploom, director of market supervision at the FSA, said in an interview.

The country’s financial regulator and central bank in November told Sweden’s four biggest lenders to target common equity Tier 1 capital of at least 10 percent from January 2013 and 12 percent two years later. Basel sets a 7 percent target, to be met by 2019. The rules affect Nordea Bank, Svenska Handelsbanken AB, SEB, and Swedbank AB.

--Editors: Tasneem Brogger, Jonas Bergman.

To contact the reporters on this story: Adam Ewing in Stockholm at aewing5@bloomberg.net; Janina Pfalzer in Stockholm at jpfalzer@bloomberg.net.

To contact the editors responsible for this story: Frank Connelly at fconnelly@bloomberg.net; Christian Wienberg at cwienberg@bloomberg.net


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