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Norway: A transformed bond market

Erik Lind Klaus Henrik Wiese-Hansen
Since early 2000, the Norwegian corporate bond market has been transformed. From a small market dominated by domestic utility enterprises, it has changed into a global market characterised by large issue volumes of high-yield (HY) corporate bonds. This makes the Oslo Stock Exchange and Nordic Alternative Bond Market, combined, the third largest market place for HY corporate bonds in the world.

In the same period, there has been an increasing number of international issuers and international investors on the Norwegian HY market. In 2009, only three percent of the listed corporate bonds came from foreign issuers. Now the latest figures show that in 2013, the number has increased from three percent to almost 50% and the total kroner figure related to foreign issuers is, as of 2013, approximately NOK 99 billion ($16 billion).

2014 picked up where 2013 left off and looks set to be another record year for the Oslo Børs fixed income marketplaces. The volume of new issues so far this year is markedly higher than at the same time last year. The list of new foreign corporate issues so far this year includes Axis Offshore and energy companies such as Iona Energy, Salamander Energy and Igas Energy. The Dutch ship owner Bluewater Holding carried out the largest new issue so far this year of NOR 2.4 billion, while the Toronto-listed energy company Iona Energy carried out the second-largest placement at NOK 1.7 billion.

Issuers representing capital-intensive industry such as the shipping, offshore and oil and gas industry are still the biggest players seeking the Norwegian HY market. But other sectors, such as the food and service industry, fishery, real estate and other industries are more and more using the HY platform for raising debt.

Issuers of all risk classes are represented and many issuers are in the early life cycle phase with, for example, assets under construction, low cash flow visibility, and high leverage.

There are various reasons why the HY market is attractive to international issuers. It has flexible and tailored structures available (such as secured and unsecured structures, project and corporate structures, optional redemption, amortisation, non-amortisation and cash sweep bond structure elements), and no public rating requirements from agencies such as Standard & Poor's, Moody's or Fitch. The Norwegian HY market relies on a credit analysis prepared by the arranger' credit research department, which also includes a shadow rating.

Further, Norway has straight-forward documentation: a term sheet (normally five to eight pages) followed by a standard agreement (30 to 35 pages) between the issuer and the trustee. The short timeline (normally four to five weeks for first time issuers) is considerably lower for frequent issuers, and it has low transaction cost compared to the UK or US.

Norway also has a highly-developed trustee system. The Norwegian Trustee (Norsk Tillitsmann) is the trustee of more than 95% of the bonds issued under Norwegian law and the portfolio consists of more than 1,900 loan trusteeships (500 issuers) representing a nominal value of more than NOR 750 billion.

Further, although Norway has optional listing, if initiated, the listing process is speedy and efficient. Oslo Børs operates two marketplaces for listing and trading in fixed income instruments: Nordic ABM and Oslo Børs. The rules on duty of disclosure and trading are very largely the same for the two marketplaces, but Nordic ABM offers a speedier and less comprehensive listing process.

Finally, in Norway, there are arrangers with strong placing power operating in a mature bond market, and there is good liquidity in the secondary market.

Erik Lind and Klaus Henrik Wiese-Hansen

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