Detb Strategy

The country’s loan facilities shall be consistent with market conditions. Since the early 1990s, the country has entered into loan agreements via the issuance of government bonds. Today, the government bonds that are issued are also registered on the bond markets in Iceland and Denmark. The registration of the country’s government bonds on these two markets makes it possible for many investors to purchase the bonds.

When the country undertakes to issue a bond and thus enters into such a loan agreement, there are several factors that are considered, including:

• That the financial cost should be a low as possible;

• That effort is taken to ensure that a portion of the debt is long-term debt such that the National Treasury shall not be obliged to refinance too large a portion of the debt at the same time and thus be forced to take on an excessive amount a refinancing risk; moreover, there is a stipulation in the finance law that attempts to ensure against extreme increases in interest rates from year to year;

• That efforts be made to ensure that the issuance is at least DKK 1 billion for each grouping of bonds to mitigate against a liquidity premium that could result in fewer investors expressing an interest because the allocated amount is too small.

• That efforts be made to enter the market at least every other year to balance out fluctuations in the market and thereby maintain close connection with investors.

• Financial instruments may be used to mitigate risk and financial costs.  However, each such financial instrument shall be presented to the Governmental Bank’s Board of Directors for review.

Below is shown the average repayment period for the loans issued in various countries (Oct 2017).

• Denmark, 8.01 years
• Sweden, 6.75 years
• Germany, 9.02 years
• Finland, 7.37 years
• Faroe Islands, 4.23 years

 

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