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Danish Agency Looks For DIY Credit Swap

Eksport Kredit Fonden, the Danish export credit agency, is looking to enter a credit-default swap tied to sovereign risk to reduce its USD800 million exposure to Turkey. Lars Kolte, managing director in Copenhagen, said the agency would ideally enter an over-the-counter derivative transaction where it could offload Turkish risk, given the country's current plight, in exchange for taking on risks to other countries where it is not as exposed, such as China and Mexico. "If Turkey goes down, we're in deep [trouble]," he noted, adding, "but by doing swaps we can free up capital and create more capacity for Danish exporters."

Any deal would likely be similar to what the Danish government-backed entity did roughly a year ago with its neighbor, The Swedish Export Credits Guarantee Board. In that transaction, the Danes' first and only credit derivative, the Swedish agency offloaded risk to Vietnam in exchange for taking on risk on India. Kolte said the 10-year contract, which he dubbed a do-it-yourself credit-default swap, calls for the Danes to be paid roughly USD10 million in a Vietnamese credit event and for about USD20 million to be paid to the Swedes in the event of an Indian credit event. "We consider the risk of India going bust as being half that of Vietnam," he summed up. Using China or Mexico, for example, in a swap against Turkey would also involve some sort of risk premium conversion, but he said it was too early to estimate.

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