Eksportfinans ASA

Rating

The current ratings are AA from Standard & Poor's and Aa3 from Moody's.

Financial facts

Third Quarter Report 2011

NEWS 

2011-11-24 08:17 時報資訊 【時報-台北電】

Rating Action

Moody's downgrades Eksportfinans's ratings to Aa3 from Aa1; review for further downgrade (Norway)

London, 28 October 2011 -- Moody's Investors Service has today downgraded Eksportfinans ASA's issuer and debt ratings to Aa3 from Aa1.
The subordinated debt and hybrid ratings were also downgraded to A1 from Aa2 and A2(hyb) from Aa3(hyb), respectively. All ratings were placed on review for further downgrade. The Prime-1 short term ratings were unaffected.

The rating action follows the Norwegian Ministry of Finance's decision not to grant Eksportfinans a permanent exemption from the European Union's Capital Requirement Directive (CRD). The downgrades reflect Moody's view that the decision implies a weaker commitment from the Norwegian government to support ksportfinans, in the event of need. The review reflects that Eksportfinans will have to either restructure its larger loans and/or increase its capital, which could exert pressure on the institution's franchise and its profitability, as well as the increasing uncertainty regarding governmental support.

RATINGS RATIONALE
The CRD applies to all financial institutions in the European Economic Area countries, including Norway. Despite the Ministry's decision not to grant a permanent exemption, Eksportfinans will nevertheless benefit from a one-year transition period to year-end 2012, during which it will be exempt from the directive. Eksportfinans has since the beginning of the year benefited from a prior temporary exemption to the CRD.

After this transition period, Eksportfinans will have to adhere to the directive's large exposure provision, which stipulates that no exposure can exceed 25% of regulatory capital. The institution reports that under the directive, the maximum allowable exposure to a single client would be approximately NOK1.4 billion, compared with NOK7.1 billion under the current rules, based on Eksportfinans's regulatory capital at year-end 2010. Consequently, we expect that Eksportfinans will need to consider some material changes to its capital structure and/or its large exposures.
Moody's downgrade of Eksportfinans's ratings reflects its view that the Ministry of Finance's decision not to grant a longer-term exemption to the CRD implies a weaker commitment to support Eksportfinans. Historically, a substantial element of support has been incorporated into Eksportfinans's ratings, reflecting the Ministry of Finance's previous demonstrations of support, including the offering of funding for qualifying export projects for two-years ending in 2010 and the placement in a higher objective category by the State Ownership Commission in 2009.
However, in the press release where it communicated its decision, the Ministry of Finance stressed its commitment to continue to provide support to the export industry but did not specifically refer to Eksportfinans. Therefore, Moody's understands it is conceivable that a solution may be found to support exporters that does not include Eksportfinans. As a result, we have reduced the uplift incorporated into Eksportfinans's
ratings.
FOCUS OF THE REVIEW
During the rating review, Moody's will focus on the implications for the institution's business model and on its monopoly status for governmentsponsored export lending. It will also assess whether the current rating levels adequately reflect the likely levels of future governmental support.
Moody's understands that to comply with the CRD, Eksportfinans will have to either restructure its larger loans and/or increase its capital, if possible. The rating agency added that whilst a successful capital raising could address some concerns, a substantial restructuring to reduce exposures to large loans could jeopardise Eksportfinans's franchise and profitability, or even compromise its operations under its current business model. Furthermore, Eksportfinans has to date benefitted from a legal monopoly with respect to the provision of governmentsupported export lending in Norway. Such a market position may be in question in the future, dependent on the outcome of the Ministry of Finance's future plans for the export finance industry.
Whilst the review process will consider all possible options, Moody's says that it could potentially result in a multi-notch downgrade of Eksportfinans's issuer and debt ratings, in particular (i) if compliance with the regulation significantly alters Eksportfinans's privileged position as the only provider of government-supported export credits or (ii) if the government does not prove supportive in the process of ensuring compliance with the new rules.
In line with Moody's methodology for government-related issuers, Eksportfinans's Aa3 issuer and senior debt ratings rating is derived from a Baseline Credit Assessment of 5 (on a scale of 1 to 21, where 1 represents the lowest credit risk) and Moody's assessment of systemic support for Eksportfinans, which reflects its function as an important tool for the government (15% ownership) as a provider of funding to the Norwegian export sector.

PRINCIPAL METHODOLOGIES
The principal methodology used in this rating was Revised Methodology for Government Related Non-Bank Financial Institutions published in Aug 2006. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.
Headquartered in Oslo, Norway, Eksportfinans reported total assets of around NOK205.6 billion (EUR26.4 billion) at end-June 2010.

REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
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