Government guarantees and re-lending


​The central government provides on-lending and government guarantees to a number of government-owned companies. On-lending and guarantees contribute to better borrowing terms for the companies due to the central government's high credit rating. In recent years the type of financing has moved gradually from guarantees towards on-lending. This is motivated by the usually lower financing costs of on-lending, as the loan is financed by issuing government bonds, which are considerably more liquid than equivalent government-guaranteed issues by the companies. Government-owned companies typically combine on-lending with conclusion of derivatives contracts with commercial banks. This enables them to improve their risk management while benefiting from the low financing costs of on-lending.

On-lending and government loan guarantees derive from the political wish to support certain projects. The majority of the loans are issued to government-owned companies involved in large infrastructure projects.

Companies with access to on-lending or loan guarantees

On-lendningGovernment-guaranteed loans
DR (Danish Broadcasting Corporation)X
DSB (The Danish State Railways)X
​EKF (Danish Export Credit Agency)​X
​Energinet.dk​X
​Femern (The Femern Belt Bridge)​X​X
​Femern LandworksX​​X
The Financial Stability Company​​X
​Fjordforbindelsen Frederikssund​X​X
The Metro Company​​X
​The Danish North Sea Fund​X
​SSI (Statens Serum Institut)​X
The Great Belt Bridge​​X​X
​Sund & Bælt Holding​X​X
​CPH City and Port Development​X
​Øresund Landworks​X​X
Øresundsbro KonsortietX
​Ring 3 Letbane I/S​X
Note: X indicates that the company has access. The table includes companies whose loan guarantee is administered by Danmarks Nationalbank on behalf of the central government.

 

Purposes and frameworks for the companies' borrowing are laid down by law. As a main rule, the companies that may raise government-guaranteed loans or have access to re-lending pay an annual commission of 0.15 per cent of the loan value to the government.

On-lending

On-lending means that loans are raised directly from the central government. The loan proceeds are paid from the central government's account, and the resulting financing requirement is met via current issuance in the government's key on-the-run issues. The companies pay interest and redemptions to the central government. The terms and conditions basically mirror those for domestic government bonds, so that coupon rates, interest-payment dates and redemption dates for on-lending correspond to the characteristics of existing government bonds.

The outstanding volume of on-lending was almost kr. 104 billion end-2016 or 5 per cent of GDP.  Since on-lending is financed via issuance of government securities, it increases the central government's financing requirement. This supports the scope for building up liquid series of government securities. On-lending increases the EMU debt and the central-government debt since the asset in he form of the lending to the companies is not offset.

Government Loan Guarantees

For loans with government guarantee, the central government guarantees payment of interest and redemptions on the companies' loans raised in the private market. Given the central government's credit rating, a government guarantee enables the company to raise loans in the private market at lower interest rates than would have been the case for loans without government guarantee. The interest rate on government-guaranteed loans will normally be higher than that on the central government's own issuance even though the credit risk is the same for the investor. This reflects that investors typically demand compensation for the lower liquidity in the companies' issuance compared with government issuance.

At end-2017, Danmarks Nationalbank administered government loan guarantees on behalf of the central government amounting to kr. 24 billion or 1 per cent of GDP. The central government also issues guarantees not administered by Danmarks Nationalbank. An aggregate list of the central government's total guarantee commitments is available in the Government Accounts.