The Scandinavian loan market has had a quiet six months compared to the same period last year, with dealflow dropping sharply and even high profile deals struggling in a market where banks have been looking for better margins.
According to most bankers, the main reason for this drop in
activity is that the number of borrowers tapping the market for
refinancings has dramatically fallen. "Scandinavian lenders were
extremely active last year and the year before," says David
Roberts, assistant general manager and head of syndications at Den
Danske Bank in London.
"The majority of key borrowers entered 1998 already locked into
five or seven year financings at sub-20bp margins. And with the
rises in margins seen in the UK, western Europe and the emerging
markets, most Scandinavian borrowers have assumed that they are not
going to get cheaper financings this year."
Incentive was one borrower to come to market in the first
six months looking for cheap funds. The blue chip Swedish holding
company wanted $1bn over seven years and appointed Deutsche Bank to
arrange the deal. Deutsche priced the deal at 13.75bp for the first
five years and 15bp for years six and seven.
Although the deal was a refinancing of an existing facility
arranged by Deutsche and Enskilda Debt Capital markets in 1996,
many observers saw the pricing as too tight. As a result the deal
took longer to close than expected - although it was ultimately
successful - and sent a worrying signal to the rest of the
market.
"The reception that Incentive got frightened many people," says the
head of syndication at a US bank in London. "Here was a great
company struggling to get enough banks. It was a definite sign that
banks wanted pricing to go up."
But pricing has not risen dramatically. Instead most single-A type
borrowers have found that their loan facilities are now carrying
margins of between 17.5bp and 22.5bp.
The DM450m seven year revolving credit for Rauma, arranged
by Deutsche Bank, Merita and Enskilda Debt Capital Markets, is a
case in point. The transaction carried a margin of 20bp over the
first five years and 22.5bp for years six and seven. Appetite was
strong in syndication and the loan was oversubscribed.
Opinions differ as to why margins have not increased further. Some
believe that the number of banks supporting the region is still
high - despite certain US and Canadian banks moving out of the
market because of the low pricing - and that competition for Nordic
mandates has remained strong.
"Although there has been some refocusing, there is still a large
number of banks covering Scandinavia and limited dealflow has meant
that borrowers have had the luxury of a liquid market," says Den
Danske's Roberts.
"These banks are still committed to relationship lending. And while
they are also committed to achieving higher return on equiy, they
still view their relationship clients as very important to
them."
Others believe that Scandinavia is running about three months
behind the UK in terms of pricing, and that the next six months
will see margins for Scandinavian borrowers edge up.
"Scandinavia has always been cheaper," says one banker. "But the
number of banks which can continue to run their loans business
offering 15bp margins is decreasing.
"More and more banks are moving away from the region. Before too
long, liquidity will become an issue like the rest of Europe."
EW
