This newsletter offers a brief overview of how we expect the Finnish debt market to develop in 2013.

Various economists from a broad range of financial institutions and research centers forecast slow economic growth for Finland in 2013. However, market actors seem to be taking a cautiously optimistic approach to the year. Discussions with several clients have led us to conclude that the market sentiment is more positive than last year. Project pipelines are more full than last year and the market activity expected to pick up further during the spring and especially during the second half of the year.

We see two main explanations for this mood. First, activity during the beginning of the year was driven by an amendment relating to transfer tax on real estate transactions. The amendment increased taxation through both a higher tax percentage related to the shares of a real estate company and broader tax base. The transfer tax rate increased from 1.6 % to 2 % in relation to transfers of shares of real estate companies when the tax rate of ordinary limited liability companies remained unchanged at 1,6 %. The tax base was extended by including debt to the taxation value instead of using the debt free value. This extension in the tax base is applicable to all sales (i.e. sale of shares in real estate and ordinary companies and real properties). Transfer tax on real property transfers will remain unchanged at 4 %. The amendment came into force in March 2013 and caused a rush to close a number of deals before that. The market has since calmed down and is catching its breath before spring and summer.

Second, many investors and companies are facing a wall of debt maturities. In Finland, refinancing these debt portfolios will mainly happen in 2014 and 2015, with a minority already maturing this year. Some borrowers are also actively pursuing early refinancing in order to avoid the expected peak. In either case, we expect the number of refinancing projects to increase in the near future.

The year 2013 could also be the breakthrough year for wind power construction. Finnish wind power capacity is low in comparison to other Nordic countries, being about a tenth of, for example, Swedish wind power capacity. Several investors and sponsors are now active in the market and looking to unleash the potential in this relatively untapped market. There are also signs that project financing could be used to fund certain wind park developments.

Shift to bonds continues

The bond market continues to attract issuers. In 2012, Finland experienced a dramatic increase in bond issues with Castrén & Snellman being at the forefront of this development. Though traditional lenders are still willing to lend to quality customers, borrowers with access to bond markets have an alternative channel of funding. We expect many corporations to choose bond funding, amounting to a significant market volume this year, if not as large as in 2012. We also expect the number of private placements to increase. It is likely that an increasing amount of M&A activity will be financed with a combination of a bank loans and bond issues or even entirely with bonds.

2012 also saw the issue of Finland's first public secured bond . Further secured bond issues will follow in 2013 if issuers are able to obtain a clear positive pricing effect by granting a security. This will be of particular interest to real estate investors. They are witnessing a flight of UK and continental financial institutions from the Finnish market due to a focus on their core markets and stricter regulations at the same time as a total of 6 to 7 billion euros of debt are mature during the following 2 to 3 years.