The Danish market for corporate bonds: With a focus on non-financial enterprises

Jesper Sørensen & Morten Brink Kristensen

Student thesis: Master thesis


In the aftermath of the financial crises, tightened lending procedures have made it harder for nonfinancial enterprises to get access to traditional loans. This is leading to the start of a paradigmshift, where the role of banks decline, and is replaced by direct relationships between enterprises as borrowers and investors as lenders with the use of corporate bonds. The Danish corporate bond market is getting bigger and more accessible for non-financial enterprises. Until year 2009, the Danish corporate bond market for non-financial enterprises was underdeveloped, but hereafter we have seen large increases in the issuances in this market. On the 9th of April 2013, 20 non-financial enterprises had outstanding bonds in the amount of EUR 20,4 billion divided in 71 issues. The market has mainly been used by the largest Danish non-financial enterprises until year 2012, but hereafter several enterprises from the middle segment have started to use the market. This occur, among others, as changes to existing Danish law have made it easier to issue corporate bonds, without concerns about having to be licensed as a bank, and furthermore, the introduction of a new alternative market place called First North Bond Market. Small and medium sized enterprises (SME) can have a hard time using the market due to size limitations. SME’s can be included by implementing a market for securitization, where SME loans are pooled in a Special Purpose Vehicle and used as collateral for bond issuances. Securitization can help develop the Danish corporate bond market, but we do not believe it is the right solution. Mutual funds do not presently invest much in Danish corporate bonds. If more mutual funds are set up to invest in the Danish market, it could develop the market further. Institutional investors are the primary investors, and they have increased investments in corporate bonds, as the bonds can provide high returns and increased diversification. The placement rules and the Solvency II Directive give incentives to invest in listed corporate bonds and investment-grade bonds mainly, which can be a problem for future issuers. There are presently favourable opportunities for issuers, as supply is lower than demand. But there are concerns for investors, due to talks of a corporate bond bubble, which could result in losses if interest rates increase. There are other funding possibilities, which non-financial enterprises can use as alternatives to corporate bonds. These alternatives are both government initiatives and market-based possibilities. “Vækstfonden”, “Eksport Kredit Fonden”, and Bank Package V are government initiatives. The market-based possibilities are an expansion of the Danish mortgage legislation, and a revival of the mortgage-deed market as a possible residual funding opportunity. Finally, pension funds or larger non-financial enterprises with excess capital, can invest directly in SME’s.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2013
Number of pages142