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Renewed Investor Interest in Norway Shipping Bonds

Color
File image courtesy Color Group

By Reuters 2016-06-14 11:40:22

A reawakening of Norwegian high-yield corporate bonds has raised hopes of an eventual resurgence for the multi-billion dollar market, which has dried up as the oil industry grapples with lower prices.

Although defaults by supply ship and drilling rig operators in the oil-rich country are set to hit some investors, there are signs others are again willing to buy bonds offering higher returns for more risk.

This interest is due to a rise in oil prices, with Brent crude at just under $50 from a January low of $27, and the fact that Norwegian companies are restructuring debt.

Two companies have so far tested the waters, with chemical tanker firm Stolt-Nielsen last week adding to existing bonds, while shipping firm Color Group refinanced 500 million Norwegian crowns ($59.89 million) after spotting investor interest in the market.

"It obviously helps (higher oil prices) and that you see restructuring processes...both are positive for investors," Color's chief financial officer, Bjoern Paulsen, told Reuters, adding that most of the demand was from existing bondholders.

"It's about 60 percent Norwegian investors and 40 percent foreign investors," he said.

Norwegian oil service firms led a dramatic growth in high-yield bond issuance in Norway. Outstanding issuance stood at 218 billion crowns ($26.6 billion) at the end of 2015, up from just 15 billion in 2003, data from DNB Markets and financial data service Stamdata showed.

And while oil service firms made up about 40 percent of the total, they are not expected to start issuing again soon, despite their need for cash, as they need to restructure first, credit analysts said.

They expect non-oil firms to raise money, with many brokerages sitting on potential deals in anticipation of being able to offer acceptable prices for issuers at the same time as sufficient returns for investors.

"That window is now open," Haseeb Syed, head of credit research at Danske Bank in Norway, said.

He expects new issues could be around 500 million crowns ($61 million) each or larger, with enough demand for two to three billion crowns to be issued before the summer holidays.

"The volume capacity is somewhat reduced, but I won't be surprised if we see more volumes once we got started," said Magnus Vie Sundal, credit strategist at DNB Markets, adding that flows into credit funds had increased in recent months.