Credit Rating - An essential tool for SwedishReal Estate Companies on a growing CapitalMarket for Real Estate Bonds?

Detta är en Kandidat-uppsats från KTH/Fastigheter och byggande; KTH/Fastigheter och byggande


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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