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Nordic Update

Hiccups in the credit market

Publicerad: 2 november 2018, 18:18

Illustration: Petter Furå.

The turmoil that characterised the financial markets in recent weeks is not isolated to the stock market, but also the credit markets are becoming increasingly selective and cautious, according to several people in the real estate industry with whom Fastighetsnytt has been in contact.

However, the picture is substantially twofold. Some people say that it is primarily in the commercial paper market that it is rumoured that some players find it hard to place commercial papers at the desired prices while the bond market generally is proceeding as usual, while others see the opposite trend, that is, it is becoming harder to find investors in the bond market, but the commercial paper market is unflappable.

“We have seen the demand from the commercial paper market, but a more cautious bond market,” says Claes Helgstrand, CEO of Svensk Fastighetsfinansiering.

The fact that the demand for shorter paper, i.e. commercial papers, is greater now, seems reasonable given that the Riksbank now is increasingly signalling an impending interest rate increase. On this basis, investors are less likely to lock their capital up over longer periods, while there is growing uncertainty about where interest rates are headed.

While the global stock markets have been downright messy, talking about a messy credit market situation might be overstating it, according to observers to whom Fastighetsnytt has talked. It is definitely cautious, but far from closed. Louis Landeman, Head of Credit Analysis at Danske Bank Markets, points out, as an example, that, just last week, Samhällsbyggnadsbolaget i Norden issued a hybrid bond of SEK 100 million, and Fastator has recently issued SEK 350 million, of which at least part was refinancing of existing bond.

Wallenstam has also recently issued a bond of SEK 200 million.

“We see the credit market as very positive and often receive requests,” Susann Linde, CFO of Wallenstam, writes in an email to Fastighetsnytt.

The spreads differ
In its issue, the Gothenburg-based company had to pay a spread at 88 basis points (0.88 per cent), while Fastator, by way of comparison, had to pay an 850-point margin in its issue.

“It spreads apart,” says Louis Landeman and is endorsed by the likes of Joakim Nirup, finance expert at JLL.

This means that the players who are perceived as safe, such as Wallenstam and the major listed real estate companies, still have a very low funding cost while the smaller will have to pay more. This is the same trend as the one described initially in the certificates market, where some players find it hard to place certificates at the desired prices, but most of them still get money.

“It is mainly housing developers who find it hard to raise money in the bond market,” says Louis Landeman.

There is still a lot of money left in the systems, looking for returns, but capital is becoming increasingly selective. For some, it will be more expensive, while the larger and more established players may even feel they get cheaper funding now than just six months ago, without even having a rating.

One of the major trends in the credit market in the last two years is that an increasing number of companies are getting a rating, including the largest, such as Vasakronan, Castellum and Fabege. A credit rating reduces funding costs, but in a shaky market, it also reduces the likelihood that the issuer will be out of money.

“The need for rating increases and there is a strong likelihood that the market will keep favouring those with a rating. This applies regardless of size and other creditworthiness,” says Louis Landeman.

Joakim Nirup thinks in the same line, saying that the importance of an investment grade rating is increasing.

“The more who get a rating, the narrower the doorway, and then the market will tend to prefer investment grade,” he says.

The trend in the rating scene has recently been that the companies place greater and greater emphasis on acquiring investment grade. In addition, investment grade companies, such as Akelius, have started working to raise their rating a notch, because when times are hard, the rating level itself becomes a security blanket for the investors.

The bank is open
At this time of the year just a couple to three years ago, it was virtually impossible for new players in the real estate industry to secure funding from banks. That has now changed, and according to Joakim Nirup, bank funding is not a major challenge.

“Large volumes were issued in the bond market when the banking market was the toughest and there are strong indications that the companies used that money either for refinancing bank debt or for acquisitions, where money in the next stage finds its way into the banking sector. Regardless of which, many replaced bank debt with bond debt, which has freed up resources in the banking system,” says Joakim Nirup.

Peter Andersson, CFO of Catena, confirms the picture that the banking market is open.

“We have not yet registered any sags and the banks remain in favour of Catena. We are being approached by several banks that want to lend more,” says Peter Andersson.

When will the trend be reversed?
As mentioned above, many people feel that it has slowed down a little, but Louis Landeman emphasises that it does not involve any drama. The Eurobond market is messier, something Claes Helgstrand agrees with.

“The market is characterised by stock market turbulence, Italian budgetary problems and a messy bond market in the Euro area,” says Claes Helgstrand.

The question is then whether the situation is ephemeral? If we are to believe Peter Andersson, that is probably the case.

“My assessment is that we have got the “hiccups” right now, but that the downturn may last a little longer than regular “hiccups.” The market needed a little cooling off since the companies were rated very high before the start of the downturn. We see many good reports, but the companies are still being punished. My assessment is that we will have an upward trend at the beginning of next year,” says Peter Andersson.

Sverrir Thór

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