Government Loan Guarantees and Re-Lending

Government loan guarantees and re-lending derive from the political intention to support the financing of certain projects. Most of the government loan guarantees and re-lending managed by Government Debt Management at Danmarks Nationalbank are issued to government-owned companies involved in large infrastructure projects.

At the end of 2005, government guarantees managed by Government Debt Management totalled DKK 75 billion, and re-lending totalled DKK 23 billion.

7.1 FRAMEWORK FOR GOVERNMENT LOAN GUARANTEESAND RE-LENDING

A number of government-owned companies may raise government-guaranteed loans or raise loans directly from the central government via re-lending. These are typically companies whose tasks and borrowing frameworks are defined in an act or legal document. In addition, Danish Ship Finance A/S has access to a re-lending facility, cf. Danish Government Borrowing and Debt 2003, Chapter 10.

By issuing a loan guarantee, the government ensures that the loans raised by the company in the private market will be repaid. The guarantee thus reduces the private lender's risk on the loan, in turn reducing the borrowing costs of the government-guaranteed company. The central government establishes the general guidelines for the activities of the government-guaranteed companies in the loan markets. For example, the companies' currency exposure should normally be limited to euro.

Re-lending means that loans are raised directly from the central government. Most of the central government's re-lending reflects loans in existing government securities, meaning that coupon rates, interest-payment dates and redemption dates correspond to the characteristics of underlying government securities. Government Debt Management determines a list of acceptable loan types (the re-lending list). Re-lending is usually possible in all government bonds that are bullet loans in maturity segments between 2 and 10 years.

The central government's exposure to a potential loss in the event that the company defaults on its loans is the same for government guarantees and re-lending. Therefore the risk implications of loan guarantees and re-lending are in principle equal, cf. Danish Government Borrowing and Debt 2004, Chapter 9.

7.2 LOAN GUARANTEES

Government Debt Management manages loan guarantees to A/S Storebælt (the Great Belt Bridge), A/S Øresund (Øresund Landworks), Danmarks Radio (the Danish Broadcasting Corporation), DSB (the Danish State Railways), Hypotekbanken (the Mortgage Bank of the Kingdom of Denmark) and Øresundsbron (the Øresund Bridge). The guidelines for borrowing by the companies are described in Box 7.1 . The Danish central government, in cooperation with its Swedish counterpart, guarantees the debt, etc. of Øresundsbron. Borrowing by Øresundsbron is subject to guidelines laid down by the Swedish and Danish governments. These guidelines are equivalent to those for the other government-guaranteed companies. At the end of 2005, the companies in question had issued government-guaranteed debt totalling DKK 75.4 billion, cf. Table 7.2.1. In addition to the government guarantees managed by Government Debt Management, the central-government has provided guarantees of approximately DKK 100 billion, e.g. in connection with subsidised housing, export credits and international institutions.

7.3 RE-LENDING

In 2005, the government granted re-lending of DKK 5 billion, cf. Table 7.3.1, of which DKK 1 billion is related to refinancing of redemptions on previous re-lending. At the end of 2005, outstanding re-lending totalled DK 23.1 billion.

Re-lending to A/S Storebælt, A/S Øresund and Ørestadsselskabet I/S (the Ørestad Development Corporation) amounted to DKK 2.8 billion, primarily in long-term government bonds. In addition, Danish Ship Finance A/S obtained re-lending of USD 358 million, equivalent to DKK 2.2 billion. Re-lending to Danish Ship Finance A/S in 2005 comprised fixed-rate serial loans to be serviced biannually until they mature in 2017. In connection with the re-lending to Danish Ship Finance A/S, the central government transacted currency swaps between kroner and dollars. The dollar payments in the swap match the dollar payments on the re-lending, whereby the central government does not have any net foreign-exchange exposure in connection with re-lending in dollars.

In 2005, Danmarks Radio gained access to the re-lending facility. Energinet.dk and Nordsøfonden (the Danish North Sea Fund) are expected to gain access to re-lending in 2006.

Total re-lending in 2006 to A/S Storebælt, A/S Øresund and Ørestadsselskabet I/S is expected to be almost DKK 7 billion, of which DKK 5 billion is refinancing of existing re-lending. Re-lending to Danish Ship Finance A/S is estimated at DKK 3 billion. To this should be added any re-lending to the new companies.