Nordics show local authorities how to borrow
Agencies such as Kommuninvest, Munifin and KommuneKredit might not be the best known in the capital markets. But a growing global community of investors can’t get enough of their paper. Is it an example that others want to follow?
Agencies representing local governments are stepping up to the plate in a growing number of countries. This enables councils to tap capital markets as funding needs grow and governments move out of the market. Tax receipts, joint-and-several guarantees from their members and a culture of conservatism provide a security that underpins a legal structure. This has proved highly attractive to investors in agency paper.
A number of names (predominantly until now) from Scandinavia are already well known and trusted by the markets as triple A-rated borrowers. Hans Beyer, head of global capital markets at SEB, says: “The agencies represent a new and quickly growing asset class, underpinned by guarantees from their members. It is highly secure.”
Ulrik Ross, HSBC’s head of global public sector debt and sustainable financing, agrees: “The Nordic model of the agency for local government financing is the best in the world having proved itself throughout the crisis, and it continues to perform.”
The agencies’ burgeoning role in the capital markets was underlined by Moody’s Investor Services in its August peer-comparison report. It states: “The very highest ratings reflect the specialized role these institutions play as lenders and debt managers for regional and local governments in wealthy and stable Nordic countries.