The last nine months must go down as one of the toughest periods that Swedish Export Credit Corp has gone through. Heading into December 2011 it faced ballooning secondary levels as it became a victim of the fall-out from Eksportfinanss demise. But almost 12 months on, investors cant get enough of the Nordic region or SEK.
SEKs secondary levels in the five year part of the curve gapped out north of 100bp a widening of around 50bp after the Norwegian government, without warning, took over responsibility for the countrys export financing, rather than recapitalise Eksportfinans.
This caused the rating agencies to junk the issuer and forced many investors to sell their bonds. The move sent shockwaves across the credit markets with Nordic agencies, including SEK, unsurprisingly hit badly.
The borrower redoubled its investor relations efforts, hitting the road to explain the key differences between it and Eksportfinans. One of the main messages it underlined was that SEK was 100% government owned and in compliance with CRD IVs concentration rule while Eksportfinans was not.
"We needed to meet a lot of investors and explain our credit story," says Petra Mellor, senior manager in funding at SEK. "We met many of our investors in the winter and over the spring. Investors in the beginning were very scared. But it was quite easy to see the difference."
By the summer, Eksportfinans was no longer an issue for most investors.
"Over the last couple of months Eksportfinans has really been put behind us," says Mellor. "The issue was more of a first quarter problem than a second quarter one. We still get questions but certainly not all the time. Its not the first thing investors want to talk about anymore."
Being outside the eurozone has undoubtedly helped SEKs cause this year. It is also strongly rated (Aa1/AA+) and 100% owned by one of the few triple-A rated sovereigns left in Europe. Meanwhile it pays an attractive spread over mid-swaps at a time when rates are at all time lows. The agency pays a pick-up of about 25bp to the EIB, while SEKs sovereign pays sub-Libor levels.
Amid the turmoil SEKs investor base is evolving. Whereas in 2011 about half of SEKs debt went to investors in the US, and the year before that about half was distributed into Japan, this year European investors have become the agencys biggest supporter, taking up to 40% of SEKs debt while the US and Japan make up just 24% and 21% respectively.
This shift is perhaps partly because investors in Japan and the US have been slower to get comfortable with Nordic borrowers following the Eksportfinans debacle than European buyers.
It might also be because European buyers can find little else to satisfy their need for yield and credit quality. "Weve seen a lot of demand from Switzerland and Germany and other European investors have a lot of cash to invest," says Mellor.
SEKs secondary levels have gradually recovered from the Eksportfinans shock over the course of 2012. In May it was able to print a five year dollar global note, a difficult maturity at the best of times this year, at mid-swaps plus 73bp, having set out with guidance at plus low 70s area. SEK attracted $1.2bn of orders to the deal.
That deals secondary levels have tracked tighter as the year has gone on, marking a return of investor confidence in SEK and Nordic agencies more generally. It was trading in the 60s in late July.
The issuer plans to return with a benchmark, most likely a five year euro, after the summer break.
It has also been able to explore new markets, including the offshore renminbi in which it launched its first trade in January. The agency has two main reasons for accessing this market to fund Swedish companies with renminbi needs and to broaden its own investor base. It followed the debut with a Rmb500m deal, also a three year in late May.
But the borrower still faces challenges. As regulation makes it more expensive for commercial banks to lend, SEK might be forced to step into the breach and provide more funding for Swedish companies. This could increase the agencys funding requirement, which averages $7bn a year."The biggest question for the public sector is the scope of the public policy role," says Ulrik Ross, global head of public sector DCM at HSBC in London. "If more is demanded of agencies then the big question is how they will rise to meet those challenges. SEKs funding team knows exactly what theyre doing. They understand how to balance growth with retaining credit quality."