Credit Rating - An essential tool for SwedishReal Estate Companies on a growing CapitalMarket for Real Estate Bonds?
The capital market, with financial instruments such as corporate bonds, has over the last years
emerged as an alternative financing source for Swedish real estate companies. A seemingly
unexplored market which given the real estate companies the possibility to diversify their loan
stock and limit their exposure towards the bank. In Sweden, unlike more market-oriented
countries such as the US, commercial banks have historically almost exclusively supplied
debt capital to Swedish corporations. Assessing credit risk is crucial in debt investments, and
therefore, this thesis focuses on the Swedish capital market the current and potential future
role of credit ratings in the emerging market for corporate bonds issued by real estate
companies. We examine why only a limited number of real estate companies are credit rated
today and the importance of credit rating for the capital market. The study is based on
interviews with Swedish real estate companies, institutional investors and banks- all that in
one-way ore an other is affected by credit rating.
The Swedish financial system is undergoing a growth process where the real estate companies
to a greater extent in using bonds and certificates to finance their investments. A financing
method more widely used by government entities in the past. The transition from bank
financing to funding investments through institutional investors and private equity appears to
be permanent. The market aftermath is an increased demand for credit risk evaluations.
Information retained from the banks’ Shadow ratings or the rating institutions. We can
conclude that extended credit risk information is inescapable with a transition to a more
market oriented financial system- the remaining question is- who should preform the
valuation of the credit risk. If the banks continue making the credit risk reports of real estate
companies international investors might refrain from establishing a position as an investor in
the Swedish market. In the contrary the banks shaded ratings is more favourable for Swedish
real estate companies with more qualitative and marked adjusted reports. The market will
require independent credit information in the future but if it will be the banks or the rating
institutions that provide this information is still uncertain.
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