“In Nordic high yield you can easily think you’re buying a Ferrari and it turns out it’s not..." - Evgeny Artemenkov, a high-yield money manager at Saastopankki in Helsinki.
That, it turns out, is the understatement of the year, as Bloomberg notes, the least corrupt countries in Europe are home to its most dangerous bond market, as debt issued in Nordic nations requires no credit rating or due diligence, with company's able to claim more or less whatever they want when selling new debt.
The latest issuer in the Nordic debt markets to see their bonds collapse is Lebara Group - a Dutch mobile-phone-card provider - which sold a stunning 350 million euros ($430mm) junk floater in August of last year. Since then investors have seen the price of the bonds crash over 30%...
As Artemenkov (from the quote above) exclaimed, after he had bought the new issue and seen its value crater,
"the bond was issued using different numbers from what should have been used."
And that's the beauty (and ugliness) of Nordic debt markets - it is the wild west, anything goes - as Palmarium, the little-known private fund that used the bond proceeds to finance its purchase of Lebara, restated its accounts four times in six weeks.
Lebara is not the first and definitely won't be the last as Bloomberg points out that the absence of rules has attracted companies the world over, making the Nordics the Monaco of junk bonds.
Rather stunningly, Norway alone, which Transparency International ranks as the least-corrupt country in Europe after Denmark and Finland, churns out up to eight times more high-yield debt than European Union nations, measured as a share of its economy, according to financial-industry association Finans Norge.
"...taking at face value what a company says may be a problem,” said Per Fossan-Waage, director at the Norwegian branch of accountants PwC.
“The Lebara case may show the limits.”
The Lebara bond sale was arranged by Oslo-based Pareto Securities, the biggest high-yield arranger in the Nordics between 2010 and 2017, according to its own analysis, and as Bloomberg notes, Lebara was the fourth-largest deal it led alone in that period, but not the only money-loser for those who bought it.
Pareto’s biggest deals were a combined $1.3 billion of debt raised for oil industry players Oro Negro Drilling PTE and Sea Trucks Group Ltd, which both later defaulted...
In January the brokerage helped arrange Norwegian Air Shuttle ASA’s 65 million-euro tap of existing 7.25 percent notes due in 2019, which fell three weeks later when the company said 2017 had been “a mess.”
“We hope the issuer is able to regain confidence,” Pareto executives Inge Edvardsen and Christian Ramm said of Lebara in response to Bloomberg questions, adding that losses for investors were “highly unfortunate.”
"Unfortunate" indeed! Here's the reality of what happened in this utter fraud...
In an August investor presentation marketing the Lebara notes, Palmarium and Pareto highlighted debt of roughly 5 times earnings, an unremarkable ratio for junk-bond issuers.
The real number may be as much as 160 times, according to Credit Suisse analyst Lee Hope.
Their pitch “barely discussed” the details of the business and excludes entities where many group costs are booked, Hope said.
Unfortunately, with the level of capital market distortion created by Mario Draghi's CSPP debacle, "Caveat Emptor" has been long forgotten... until now!
“At the end of the day, bond investors need to do their homework,” said Sami Miettinen, a partner at corporate-finance consultants Sisu in Helsinki.
U.S.-style rules “would kill the market as the cost and complexity would become overbearing.”
Investing in Nordic debt deals “may be slightly riskier but it is not a casino,” said Tony Renzi, a capital-markets partner at U.S. law firm Akin Gump, whose clients include Pareto.
We beg to differ!