After oil crisis cull, Norway’s junk market emerges transformed

Bloomberg

Those oil service companies and drillers that are still around will likely survive. That’s the good news, according to Kevin Liang, who helps oversee 10 billion kroner ($1.2 billion) in bonds at Svenska Handelsbanken AB in Oslo. But the bad news is that the debt market for Norway’s battered oil sector is now a very different animal.
“Because of buybacks, equity conversion and bond exchanges that part of the market is very illiquid and much smaller than before,” Liang, 44, said in an interview in Oslo. “Risk is still too high and that market isn’t popular. We don’t think that segment is interesting at the moment. We focus on return, but liquidity is just as important.”
For those that have dared, the market has come some of the way back from a deep slump, helped by a near doubling of crude prices. The benchmark DNB High Yield Total Return Hedged Index has risen by 19 percent from a low in March. With a few exceptions, such as Seadrill Ltd., most surviving Norwegian oil service
companies have restructured through refinancing debt or raising capital. “It’s easier to navigate in the high-yield market now than before,” Liang said. “Those that were in a bad
position either went through a restructuring or bankruptcy. The picture is much clearer now. The ones that are left will make it.”
The Handelsbanken Hoyrente fund has returned 3.1 percent this year. Liang is still staying clear of oil-related debt, with the exception of billionaire Kjell Inge Rokke’s Aker ASA and Aker BP ASA. There are also other sectors that offer rewards.
The Norwegian market is attractive because it can deliver credit risk
with low interest rate risk, since bonds usually have floating rates,
according to Liang.
Among the biggest holdings of the Handelsbanken Hoyrente fund are Wilh. Wilhelmsen ASA, debt collector B2Holding ASA, Gjensidige Forsikring ASA and Stolt-Nielsen Ltd. Liang’s latest buy was fish farmer Austevoll Seafood ASA.
He’s also favoring additional Tier 1 securities, the riskiest type of bank debt. “You get a very good protection when you invest in Nordic AT1s because they have capital buffers,” he said. ‘They’ve built buffers to stand rather big falls in the economy.”