SEB Report: High Yield Still Our Preferred Choice

WEDNESDAY
Credits cushioned by strong fundamentals 9 MARCH 2011
HIGH YIELD STILL OUR PREFERRED CHOICE

With the recent hawkish stance from the ECB, implying rising underlying rates, we continue
to recommend taking on credit risk rather than duration when looking for additional yield
pickup. Hence, HY credits and among investment grade credits, the higher yielding and
more volatile financial sector, continue to be our preferred choice.
POSITIVE OUTLOOK FOR CORPORATES DESPITE INCREASING COMMODITY PRICES
Solid global growth, weather disturbances and turmoil in the Middle East and North Africa
have combined in pushing commodity prices substantially higher. This has raised a
multitude of questions and concerns, such as: Can price increases be passed on to the
consumers? Will high oil and commodity prices kill the economic recovery? Our most recent
Financial Officers survey suggest that though concerns about high raw material prices have
increased, the overall picture remains positive with most companies regarding their business
and financial positions as favourable and express willingness to make more investments
going forward.
GEOPOLITICAL ISSUES NOT A MAJOR THREAT TO CREDIT SPREADS
European corporate credit markets have been resilient to the most recent increase in risk
aversion, driven by unrest in the Middle East and North Africa. This makes sense to us given
the fact that corporate fundamentals remain strong, spreads are not unreasonably low and
the relatively attractive additional yield pickup that credits offer. Additionally, credit spreads
have historically been resilient even during times of war. Hence, there is historical support
for credits being resilient against geopolitically driven risk aversion. However, problems
could arise if unrest in the Middle East leads to a prolonged period of very high oil prices.
Ability to raise prices to compensate for raw material costs HY spread to 5yr German government yield
70% 1000%
900%
60%
800%
50% 700%
600%
40%
500%
30% 400%
300%
20%
200%
10% 100%
0%
0%
Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10
Very good Good Weak Very weak Not relevant
HY spread as percent of government yield
Source: SEB’s Financial Officers Survey Source: SEB, Markit
Important: Your attention is drawn to the statement on the back of this report which affects your rights
Nordic Credit Quarterly
Contents
Credit Strategy 3
Default rates 8
Primary markets activity 10
Macro economic trends 15
Commodities outlook 17
Credit quality trends 18
Nordic banks 24
Industrials 28
Oil & Gas 32
Pulp and paper 33
Shipping/Offshore 36
Telecom 38
Utilities 42
Nordic bonds and CDS recommendations 45
SEB’s Financial Officers Index 47
Quarterly report dates 48
Contributors to this issue
Ebba Lindahl Jonas Ranneby

Financials, Industrials Credit strategy
+46 8 506 232 08 +46 8 506 232 01
Henrik Blymke Ruben Sharma
Norway, Oil & Gas Quantitative analysis
+47 22 82 72 85 +46 8 506 233 67
Nina Glifberg Jonas Shum
Telecom, Utilities Shipping, Offshore
+46 8 506 232 10 +47 22 82 71 75
Disa Hammar Johan Javeus
Paper, Industrials Macro outlook
+46 8 506 232 69 + 46 8 506 230 19
Bjarne Schieldrop
Commodities
+46 8 506 230 27
SALES CONTACTS
Sales Stockholm Sales Helsinki

+46 8 506 232 19/20 +358 9 6162 8650
Sales London Sales Oslo
+44 80 7329 8898 +47 22 82 72 59
Sales Frankfurt Sales Copenhagen
+49 69 9727 1145 +45 33 17 77 32
This report was published on March 9, 2011

Note: all stated spreads are indicative and not necessarily based on actual trades. ASW –
asset swap spreads. N.A. –not available.
2
Credit strategy
When looking forward over the next 3-6 months the picture that emerges has not changed
significantly since our December 2010 Nordic Credit Quarterly. At that time we said that it
felt like the world was stuck in the same track and the corporate credit market was
dominated by macro issues, in particular sovereign debt issues. While the outlook is slightly
more positive today, and the ECB certainly more hawkish, macro issues remain the
dominant theme as does sovereign issues. Though the focus has, at least for the moment,
shifted east away from Europe and to the Middle East and North Africa, and in character
from debt concerns to geopolitical concerns. However, we anticipate that the European debt
story will resurface again later this year, as it has done numerous times over the last 12-
months, leading to increased volatility. Consequently, our credit market forecasts and
recommendations remain intact. We continue to prefer higher yielding names and sectors
(financials). As the chart below illustrates, this has been a fairly good strategy so far this
year. High yield continues to perform strongly (up 3.09% YTD) and financials (up 0.54%
YTD) continue to outperform the overall investment grade index (down 0.11% YTD) on a
total return basis. It is interesting to note that despite all the negative sentiment surrounding
the financial sector, performance has been relatively solid so far this year.
YTD total return iBoxx Investment grade and High yield ASW spread
6% 160 460
5%
155 440
4%
150 420
3%
2% 145 400
1% 140 380
0%
03-Jan 13-Jan 23-Jan 02-Feb 12-Feb 22-Feb 04-Mar 135 360
-1%
130 340
-2%
-3% 125 320

03-Jan 13-Jan 23-Jan 02-Feb 12-Feb 22-Feb 04-Mar
iBoxx HY YTD iBoxx IG YTD Stoxx 600 YTD
iBoxx Financials YTD iBoxx German Gov YTD SEK IG YTD
SEK gov YTD iBoxx Corp IG (LHS) iBoxx Corp HY (RHS)
Source: SEB, Markit, Bloomberg Source: SEB, Markit
iBoxx Investment grade spread iBoxx High yield spread
600 2,000
500
1,600
400
1,200
300
800
200
400
100
0 0
Jan-99 Jul-00 Jan-02 Jul-03 Jan-05 Jul-06 Jan-08 Jul-09 Jan-11 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10
iBoxx Corp IG Average default implied IG iBoxx HY Average default implied HY
Source: SEB, Markit Source: SEB, Markit
3
Geopolitical issues not a major threat to credit spreads

While the sovereign concerns at the moment largely have shifted in character from
European debt woes to geopolitical concerns in the Middle East and North Africa, sovereign
issues nevertheless remain in focus. What has changed, at least slightly, is how resilient the
European corporate credit market has been to the increased risk aversion. As seen from the
chart below, even the volatile iTraxx Main index has been more stable than the VIX index
would suggest, and the iBoxx Investment grade bond index has been even more resilient to
the most recent increase in risk aversion. This makes sense to us given the fact that
corporate fundamentals remain strong, spreads are not unreasonably low and the relatively
attractive additional yield pickup credits offer (see charts on page 5). Additionally, as seen
from the chart below, which displays US BBB spreads since 1919, credit spreads have
historically been resilient even during times of war. Hence, there is historical support for
credits being resilient against geopolitically driven risk aversion. However, problems could
arise if unrest in the Middle East leads to a prolonged period of very high oil prices.
US BBB spread during periods of war
750
650
550
450
WW2
Gulf War Iraq War
350
Vietnam War
Korean War
250
150
50
-501919 1927 1935 1943 1951 1959 1967 1975 1983 1991 1999 2007
US BBB spread
Source: SEB, Bloomberg
iTraxx Main vs. VIX Index iTraxx Main vs. Stoxx 600
120 24 120 275
115 115
22
280
110 110
20
105 105 285
18
100 100
290
16
95 95
90 14 90 295
Jan-03 Jan-13 Jan-23 Feb-02 Feb-12 Feb-22 Mar-04 Jan-03 Jan-13 Jan-23 Feb-02 Feb-12 Feb-22 Mar-04
iTraxx Main (LHS) VIX Index (RHS) iTraxx Main (LHS) Stoxx 600 (RHS Reverse scale)
Source: SEB, Bloomberg Source: SEB, Bloomberg
4
Corporate fundamentals remain solid

Business sentiment remains solid, as demonstrated by, for example, our latest Financial
Officers Survey which shows that respondents feel that the business climate is even stronger
than in our previous survey in November. Most officers believe higher volumes will
contribute to improved profitability during the current year, and expect to be able to
increase prices in order to compensate for higher raw material costs. Consequently earnings
expectations remain high. Credit quality continues to improve as well, as shown by, for
example, the improving potential downgrade vs. potential upgrade ratio. For more details
regarding our view on overall credit quality, see the Credit quality trends section.
Spread to yield – Credit still offers an attractive premium
From a valuation and risk premium perspective, the relative extra pickup from taking credit
risk vs. government risk is adequate. To illustrate this point we have included two graphs
below showing the current investment grade and high yield spread over 5yr German
government rates as a percentage of the current government yield. For example, if the
current spread were 100bps and the government yield 2% the measure would be 50%.
Currently, we are at a level of, 107% and 218% for investment grade and high yield bonds,
respectively. As seen from the chart below these levels remain relatively high from a
historical perspective, especially for investment grade. Despite the fact that investment
grade credits display a level that is higher when compared to its history, we think that the
noticeably higher yield (see charts below) high yield credits offer will outweigh this fact in
this low rate environment. Consequently we believe investors will continue to view high yield
credits as a more attractive opportunity, lending it technical support.
IG spread to 5yr German government yield HY spread to 5yr German government yield
300% 1000%
900%
250%
800%
700%
200%
600%
150% 500%
400%
100%
300%
200%
50%
100%
0% 0%
Jan-99 Apr-00 Jul-01 Oct-02 Jan-04 Apr-05 Jul-06 Oct-07 Jan-09 Apr-10 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10
IG spread as percent of government yield HY spread as percent of government yield
iBoxx Investment grade average yield iBoxx High yield average yield
9.0 23.0
21.0
8.0
19.0
7.0 17.0
15.0
(%)
(%)
6.0
13.0
5.0 11.0
9.0
4.0
7.0
3.0 5.0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2003 2004 2005 2006 2007 2008 2009 2010 2011
iBoxx Corp IG iBoxx HY
5
Banking regulation remains in focus

We anticipate regulation in general and banking regulation in particular will continue to be a
major factor throughout 2011. While there have not been major changes made to the Basel
III regulation over the last couple of months, regulation surrounding government support for
banks is an increasingly hot topic. The early January bail-in consultation paper from the
European commission had a fairly significant, but short-lived, market impact. The fact that
the consultation paper had such a significant market impact was interesting considering
that that Denmark, Germany and the UK already had regulation in place that is fairly similar
to the initial EC proposal. Clearly, as seen in Denmark (for more details see the Nordic banks
section), governments are willing to force even senior bank bond holders to suffer losses.
Ireland could be the next country where we will see this new approach by governments in
practise. Consequently, rating agencies are currently busy re-assessing bank ratings without,
or at least with limited, government support. As seen from the chart below, the rating
downgrades could be fairly significant. However, judging from downgrades made by
Moody's to Danish banks, as well as subordinated bank debt in Germany (the German
legislation mainly affects subordinated debt), the actual downgrades will likely be more
limited in scope. Partly due to the fact that the average uplift on a country level likely
overestimates the actual uplift a more stable bank has received. The other reason being the
fact that banks are becoming far more stable on a stand-alone basis, as forced by Basel III
regulation
Average government support uplift in Sr bank ratings
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
y
k
ly
a
ce
nd
m
n
es
ga
an
ar
ad
ai
pa
Ita
do
an
at
la
rtu
Sp
m
m
an
Ja
Ire
St
ng
Fr
en
er
Po
C
Ki
d
G
D
te
d
ni
te
U
ni
U
Source: SEB, Moody’s
We continue to like Financials

As we have for a long time, we still regard financials as an attractive sector opportunity,
despite all the negative sentiment surrounding the financial sector. In our opinion, the
negative effects of coming bank regulation is already priced in current spreads, as was
evidenced by the fact that German Sub debt widened only modestly and Danish Sr. debt
tightened on the back of recent downgrades (see charts on the next page). As has been the
case, financials will continue to be a more volatile sector and there will be periods of
widening for financials, probably driven by renewed European sovereign fears or regulation
concerns. However, as we have said in the past, we view these as buying opportunities. In
the current low yield environment, financials continue to represent an attractive yield pickup
opportunity over non-financials, as shown by the chart below.
6
5yr CDS spreads around time of downgrade
130 200
125 Downgrade
175
120
150
115
Downgrade
125
110
105 100
Jan-01 Jan-11 Jan-21 Jan-31 Feb-10 Feb-20 Mar-02
Danske Bank 5yr Sr CDS (LHS) Deutsche Bank 5yr Sub CDS (RHS)
Sr Financials vs. Sr Non-Financials
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
0.2
0.0
Jul-03 Apr-04 Jan-05 Oct-05 Jul-06 Apr-07 Jan-08 Oct-08 Jul-09 Apr-10 Jan-11
Sr Financials vs. Sr Non-Financials
Source: SEB, Markit
HY still our preferred choice

As members of the more optimistic camp, we have been more concerned with rising
underlying rates than corporate spreads widening. With the recent hawkish stance from the
ECB, that concern has if anything increased. Consequently, we continue to recommend
taking on credit risk rather than duration when looking for additional yield pickup. Hence,
high yield and among investment grade credits, the higher yielding and more volatile
financial sector, continue to be our preferred choice. High yield looks especially attractive
given our current 12-month forward looking default rate forecast. Both for the US and the
European region we forecast 12-month default rates well below average while spreads
remain above average. For full details regarding our default rate forecasts, see the Default
rates section.
7
Default rates
As expected the global 12-month rolling high yield default rate continues to drop. Default
rates in February declined to 2.68% in the US and in Europe to 1.52%. As shown in the chart
below, the number of defaults each month has fallen since March last year, both in the US
and worldwide, and January was the first month since June 2007 with no defaults globally.
We now forecast a 12-month rolling high yield default rate of 2.55% in the US and 1.1% in
Europe by December 2011. For full details of our default rate forecasts see the two graphs on
the following page.
Number of monthly HY defaults
45
40
35
30
25
20
15
10
0
Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10
US Europe Other
Source: SEB, Moody’s
Default rate model

Below we present our model forecasts (updated to December 2011) for 12-month rolling
default rates in European and US speculative-grade markets. Our default rate models are
based on several key financial indicators with a proven strong historical record of predicting
turning points in the default cycle. More specifically our models incorporate 12-month
lagged values for:
 C&I lending standards from the Fed’s Loan Officer Survey
 US initial unemployment claims
 European industrial production
 S&P’s US distress ratio*
 S&P’s weakest links **
*Defined as speculative-grade issues with spreads above 1,000 bps
**Defined as B- or lower rated credits with negative outlook or CreditWatch negative
8
European speculative-grade default rate forecast US speculative-grade default rate forecast
16% 14%
14% 12%
12%
10%
10%
8%
8%
6%
6%
4%
4%
2% 2%
0% 0%
2000-09 2001-09 2002-09 2003-09 2004-09 2005-09 2006-09 2007-09 2008-09 2009-09 2010-09 2011-09 1991-10 1993-10 1995-10 1997-10 1999-10 2001-10 2003-10 2005-10 2007-10 2009-10 2011-10
European speculative-grade default rate Model Forecast U.S. speculative-grade default rate Model Forecast
Source: SEB, Moody’s Source: SEB, Moody’s
Speculative-grade default rate forecast December 2011
Market Implied
Europe SEB SEB S&P Moody's Moody's
(5yr average) Europe U.S. U.S. US Europe
6.3% 1.1% 2.6% 1.8% 2.1% 1.1%
Source: S&P, Moody’s and SEB. Market implied rate is a 5yr average and assumes a 40% recovery rate.
12-month default rates 1982 – February 2011 Market implied default rate (5yr average)
18% 4.0%
14%
16% 3.5%
12%
14% 3.0%
10%
12% 2.5%
8%
10% 2.0%
6%
8% 1.5%
4%
6% 1.0%
2%
4% 0.5%
0% 2% 0.0%
1982-01 1985-01 1988-01 1991-01 1994-01 1997-01 2000-01 2003-01 2006-01 2009-01 2004-06 2005-03 2005-12 2006-09 2007-07 2008-04 2009-01 2009-10 2010-07
U.S. speculative-grade default rate European speculative-grade default rate Crossover (LHS) Main (RHS)
Source: S&P Source: SEB, Bloomberg
9
Primary market activity

EUR: TOTAL ISSUANCE
The trend towards decreasing corporate issuance seen in 2010 continued at the beginning
of this year. So far this year, total issuance in the EUR bond market has amounted to EUR
17.3bn, representing a 22% decline compared with the same period last year. Many
investment grade issuers remain cash rich and many companies have limited investment
requirements, limiting their need for funding. Acquisition activity has increased however and
could positively affect supply this year.
EUR non-financial issuance
300
250
200
EUR bn
150
100
50
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
YTD
Several Nordic names issue in EUR

So far this year a number of Nordic names have issued in the euro market. After having
postponed the sale of a new hybrid capital bond in December due to volatile market
conditions, Dong (Baa1/A-) issued its new EUR hybrid capital bond in January. The bond,
which totalled EUR 700m and was issued at m/s +450, is due 3010, and callable in 2021. At
the same time Dong repurchased its outstanding EUR 1.1bn callable subordinated capital
securities. In February, TeliaSonera (A3/A-) issued a 9yr EUR 750m fixed bond priced at
m/s+90, while TDC (Baa2/BBB) issued a 4yr EUR 800m fixed bond priced at m/s+90 and a
7yr EUR 800m fixed bond priced at m/s+120. Volvo (Baa2/BBB-) has also been in the
market with two smaller FRN issues, a 2yr EUR 100m bond priced at EURIBOR +65bps and
an 18 month EUR 100m bond priced at EURIBOR +55bps.
New bank regulation drives new types of subordinated debt
New regulations, including the Basel III rules, announced during 2010 could affect banks’
capital requirements and as a result the banks have begun investigating additional ways of
funding themselves. In February, Credit Suisse (Aa2/A) issued a 30yr USD 2bn contingent
convertible bond also known as “cocos” at a yield of 7.875%. The bonds will be converted
into equity if the bank’s core Tier1 capital ratio or common equity Tier 1 ratio falls below 7%.
They will be callable after 5.5 years with a final maturity date of 2041. This issue represented
the first public sale of cocos by a major European bank and it was oversubscribed 11 times
demonstrating strong interest. This type of issue could provide investors with a cushion
against losses compared with traditional subordinated debt while reducing the risk of
taxpayer-funded bailouts.
10
Nordic bond issues in EUR
Company Rating Issuance date Maturity date Amonut issued Spread (m/s) Yield
DONG Baa1/A- 2011-01-13 3010-06-01 EUR 700m 450 -
TeliaSonera A3/A- 2011-02-18 2020-02-18 EUR 750m 90 4.365
Volvo Baa2/BBB- 2011-02-11 2013-02-18 EUR 100m Euribor +65 1.739
TDC Baa2/BBB 2011-02-15 2018-02-23 EUR 800m 120 4.429
TDC Baa2/BBB 2011-02-15 2015-02-23 EUR 800m 90 3.569
Volvo Baa2/BBB- 2011-02-18 2012-08-28 EUR 100m Euribor +55 1.638
Activity in the HY segment was particular robust during H2 2010 with FY 2010 issuance
totaling EUR 45.6bn compared to EUR 29.5bn in 2009. So far in 2011, HY issuance is down
4% compared with the corresponding period in 2010.
HY non-financial issuance
50
45
40
35
30
EUR bn
25
20
15
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
YTD
The HY segment has accounted for 21% of issues YTD 2011 compared to 18% in the same
period last year. At the same time, BBB-rated issuers have comprised 44% of issuance and
companies rated A- or higher 35%.
Issuance by sector (Jan – Feb 2011) Issuance by rating (Jan – Feb 2011)
HY
Other Pharma
Utilities 21%
Consumer 4% 5%
A
22%
9% 35%
Retail
Oil & Gas
3%
0%
Auto
24% Telecom BBB
30% 44%
Basic Materials
3%
Industrial
0%
Source: SEB, Bloomberg Source: SEB, Bloomberg. *High yield includes non-rated issues
11
The telecom, automotive and utility sectors have been most active in the primary market
this year, comprising 30%, 24% and 22%, respectively of issued volume. During the same
period, the five year segment has still been most used, accounting for 31% of issuance. The
six and seven year segments remain popular as well, accounting for 19% and 18% of issued
volume respectively so far this year.
We believe renewed M&A interest beginning late last autumn will continue this year and
may benefit issuance. Further, we expect the bond-for-loans trend to be maintained which
should drive a large share of refinancing volumes in 2011. We expect the total amount
issued this year to be similar to last year. We see continued strong interest in BBB and HY
issuance.
SEK PRIMARY MARKET ACTIVITY
A total of SEK 186bn was issued in 2010, down 2% from 2009. At the beginning of this year,
the trend of recovering volumes continued with total SEK bond issuance year-to-date of SEK
32bn, corresponding to an increase of 2% compared to the same period last year.
SEK denominated issuance by financial institutions has declined by 19% to SEK 15bn year-
to-date, and represent 47% of the total amount issued in the SEK market. A total of 14
financial institutions, compared to 13 during the corresponding period last year, have issued
bonds in the SEK market, of which 11 were non-Nordics, accounting for 45% of volume
issued by financials.
SEK Total issuance 2008-2010 and YTD 2011
250,000
200,000
150,000
MSEK
100,000
50,000
0
2008 2009 2010 2011 YTD
Corporates Financials Gov./Muni. owned Gov. guaranteed
As of March 2, SEK corporate issuance had increased by 62% to SEK 6.9bn from SEK 4.0bn
during the same period last year. The largest bond issuer was Volvo (Baa2/BBB-) which
issued five bonds totalling SEK 3.8bn between January and 2 March, four with floating rates
and one fixed. Their terms were as follows: a 2yr SEK 500m bond priced at STIBOR +100; an
18 months SEK 1.3bn bond priced at STIBOR +85; an 18 months SEK 1bn bond priced at
STIBOR +80 and finally two 2yr SEK 500m bonds issued in March at STIBOR +97 and m/s +
97.
It remains attractive for Euro-zone based issuers to issue in SEK due to the wide EUR/SEK
basis swap. For example, KFW has issued three bonds and EIB two, together totalling SEK
4.2bn. At the same time, as domestic Swedish issuers have limited financing requirements
we expect only modest SEK issuance and expect total issuance to be in line with 2010 levels.
12
While Euro HY market issuance has increased compared to the same period last year,
corresponding HY activity in the SEK market has been low. With institutional investors
showing little interest in HY names in a SEK market lacking rated HY companies we do not
expect a similar trend in the SEK HY market to that seen in its EUR counterpart.
SEK Total Monthly issuance
45000
40000
35000
30000
25000
20000
15000
10000
5000
0
ay
r
ry
ly
r
y
t
ch
ril
ne
er
s
be
be
be
ar
Ju
Ap
gu
ua
ob
M
ar
Ju
nu
em
em
em
Au
br
ct
Ja
ov
ec
Fe
pt
Se
D
2008 2009 2010 2011
NOK: PRIMARY ACTIVITY STILL DOMINATED BY HIGH YIELDS

With around NOK 8.5bn of corporate bonds issued or announced in the Norwegian market
since January 1, the new year has started strongly, even though volumes lag those during the
same period last year due to the issue of a single large convertible bond by Petrobakken in
Q1 2010. Excluding that issue, volumes this year have increased slightly. HY companies
continue to dominate activity, accounting for 73% of total issuance. Despite decreasing
slightly compared to last year, we still believe HY’s will represent a very high share in 2011 as
well, due to the maturing HY bonds in 2012 in particular, which are likely to be refinanced
this year.
As many large, well capitalised IG companies have limited funding requirements in 2011, we
expect modest primary activity. Increased M&A could represent a swing factor, as well as an
increased interest to diversify funding sources. We believe easier access to bank funding still
represents a factor that will reduce the supply of IG corporate bonds this year, which is
unfortunate for the bond investors who have shown strong demand for these rare (non-
utility) credits lately.
13
NOK corporate bond issuance - by year NOK corporate bond issuance – by rating
90 000 90 %
CCC & lower

80 000 80 % A
8%
21 %
70 000 70 % B
31 %
60 000 60 % BBB
6%
50 000 50 %
NOKm
40 000 40 %
30 000 30 %
20 000 20 %
10 000 10 %
BB
0 0% 34 %
2005 2006 2007 2008 2009 2010 2011
Investment Grade High Yield Percentage of HYs
Source: SEB, Stamdata Source: SEB
The oil related industries are still dominating the primary activity in the Norwegian corporate
bond market in 2011, as it did in 2010. In terms of shadow ratings, BB rated companies are
the most active issuers, as they were last year. In terms of individual names, this year’s
largest issuers are: Aker Drilling (NOK 1.5bn), Ship Finance (NOK 0.75bn), Dannemora
Mineral (NOK 0.72bn) and Solstad Offshore (NOK 0.7bn).
IG primary issue spreads (2011) HY primary issue spreads (2011)
175 1000
Dannemora Mineral
Vardar
150
900
Energiselskapet 800
125
Buskerud Aker Drilling
700
Spread (bps)
Det norske
Spread (bps)
100 Hafslund oljeselskap

Posten 600 IM Skaguen Host Hoteleiendom
BKK Morpol
E-CO Energi
75 Olympic Shipping
500
Solstad Offshore
50
BKK 400
Wilh Wilhelmsen Prosafe SE
25 300
- 200
0 1 2 3 4 5 6 7 8 9 10 11 12 13 1 2 3 4 5 6 7
Years to maturity Years to maturity
Source: SEB Source: SEB
Norwegian primary and secondary market spreads in Q1-11

Since our latest Nordic Credit Quarterly, published in early December 2010, there have been
several significant bond issues coming to market. In particular, the Aker Drilling bond
attracted interest due both to its size (NOK 1.5bn) and the company’s re-listing on the Oslo
stock exchange. The company issued a fixed and a floating tranche paying Nibor +700bps.
We also noted Posten, the only corporate IG non-utility issuer in 2011, which attracted
strong interest and closed within a very short period.
So far this quarter, NOK secondary market spreads have tightened slightly among IG
companies, and somewhat more among the HY companies. Consequently, the spill-over
effect from increased debt concerns regarding PIIGS countries and the Middle East unrest
does not yet appear to have affected corporate NOK spreads.
14
Macro economic outlook

SELF-SUSTAINING RECOVERY AND FASTER NORDIC RATE HIKES
The global economic recovery appears to be on a firmer footing in most parts of the world
and in need of less support from massive monetary and fiscal stimulus. Several central
banks have already embarked on a rate hike cycle while many others are approaching the
point where rate increases begin. While rates will be raised in several countries this year
global monetary policy remains highly accommodative and should continue to support
growth this year.
In the US economic signals have remained upbeat even though the labour market recovery
is still lacklustre. The housing market also remains a drag on the economy but early signs
that prices are stabilising have recently emerged. In Europe the division between north and
south is clear. Germany is growing strongly with leading business cycle indicators suggesting
this will continue. Indebted PIGS countries are still struggling with necessary austerity
measures likely to severely restrict growth for several years. Nevertheless, the European
debt crisis has entered a calmer phase with less market turmoil and lower risk to the euro.
The establishment and likely expansion of the European rescue mechanism (EFSF) has
therefore had the intended effect. While not excluding the possibility that debt problems
may re-emerge, if they do we would expect events to unfold in a more orderly fashion.
We expect global growth of around 4.5% in 2011. While the overall outlook appears
promising there are threats to a benign scenario. Inflation is returning in many countries and
may force central banks to lift rates more rapidly than they may otherwise have done. Of the
major central banks the ECB has expressed most concern with a rate hike at its next meeting
in April now very likely. Also, the BOE looks set to raise rates in coming months while we still
expect the Fed to remain sidelined this year due to the continued weak labour market and
low inflation.
In those countries where inflation is increasing, it is being driven mainly by rising food and
energy prices. While accurately projecting changes in prices is difficult, we expect
inflationary pressure to ease eventually. Food price increases appear to have been largely
the result of bad weather (la Nîna) while oil prices have risen sharply on the back of recent
political turmoil in the Middle East. While the situation should normalise eventually, the near
term still presents upside risks to commodity prices and therefore to inflation implying a
need for central banks to remain vigilant. Read more about our view on commodities on
page 17.
Global GDP growth (y-o-y % change)
2009 2010 2011E 2012E

United States 2.6 2.9 3.6 4
Japan -6.3 4 1.6 1.6
Germany -4.7 3.6 3.1 2.5
China 9.2 10.3 9.5 8.5
United Kindom -4.9 1.4 1.5 2.5
Euro zone -4 1.7 1.9 1.8
Nordic countries -4.6 2.9 3.4 2.6
Sweden -5.3 5.7 4.7 2.6
Norway -1.4 0.1 2.7 2.5
Denmark -4.7 2.3 2.6 2.3
Finland -8.1 2.7 3.5 3
Baltics -15.6 1.2 4.1 4.7
OECD -3.5 2.7 2.8 2.8
Emerging markets 2.6 7.1 6.5 6.5
Source: OECD, SEB
15
Superior Nordic fundamentals continue to pay off

Nordic countries continue to benefit from strong economic fundamentals particularly their
low sovereign debt levels and balanced budgets, as well as more generally ongoing strong
economic expansion in Germany. The Swedish economy reported record 7.3% y/y GDP
growth in Q4 while we forecast a solid 4.7% increase in 2011. In response we expect the
Riksbank to hike rates at every meeting this year, implying a repo rate of 2.75% by year end.
Rate hikes together with strong exports and solid fundamentals mean that the Swedish
krona is likely to continue to strengthen. However, we expect the economy to be able to
adapt well to a stronger currency, an argument supported by our own surveys among both
large and small export companies. The Riksbank also believes the strong SEK reflects true
fundamentals and should therefore not obstruct continued normalisation of the repo rate.
The Norwegian central bank will also resume its rate hike cycle this spring with GDP growth
slightly above trend (2.7% y/y). Nevertheless, Norges Bank has been more concerned about
excessive NOK appreciation which will slow Norwegian rate hikes this year. Other Nordic
countries are expected to report solid growth in 2011.
16
Commodities outlook
Commodity prices moved to new red hot levels in February, lifted higher by constructive
growth and recovery, still plentiful liquidity as well as an additional geopolitical boost to
crude oil prices from the developments in the Middle East and North Africa (MENA) region.
Commodity prices will receive further growth driven tail wind and support going forward,
especially from the US and the Eurozone while monetary settings will continue to be
accommodative for a while more. Commodity prices could thus move further up from
current record high levels. Nonetheless, levels are high and prices are becoming stretched
and increasing volatility lies ahead.
February - a strong month for commodities
Since the start of February the UBS Bloomberg CMCIPI commodity index has moved up
3.2%. The precious metals sub index gained the most (+8.9%) and moved to a new all time
high as a result of the MENA unrest and flight to safety. The second strongest mover was the
energy sub index (+6.5%) that was pushed higher by a combination of US and European
recovery as well as the added risk premium in the oil price due to the MENA uprisings. The
metals sub index also made gains (+3.2%) over the period supported by strong growth in
global manufacturing with the US and Europe the strongest drivers.
The overall result is that commodity prices have reached new all time highs with purchase
price inflation and costs rising on a geographically broad basis. This has raised a multitude
of questions and concerns. Can price increases be passed on to the consumers? Should
interest rates be increased more rapidly in an effort to dampen commodity induced inflation
or should further interest rate hikes be put on hold as high commodity prices in general and
oil prices especially are putting a heavy taxation on further global growth? Will high oil and
commodity prices kill the economic recovery? On the last question the US Federal Reserve
estimates that a $10/b rise in the oil price cuts global growth by 0.2%. If the oil price remains
at the current level it thus shaves off some 0.5% of global growth versus a more fair oil price
of about $90/b. This is so far manageable. However, if it continues towards $150/b due to
the ongoing crisis in the MENA region, global growth could be strongly impacted. High oil
prices and recessions have a grim history with most of the major recessions since the 1970s
being preceded by spikes in the oil price.
CMCIPI index Price of Brent Crude (USD per barrel)
2 000 130
1 800 120
110
1 600
100
1 400
90
1 200
80
1 000 70
800 60
Mar-11
Nov-10
Jan-11
Nov-10
Jan-11
Jul-10
Aug-10
Jul-10
Aug-10
Oct-10
Sep-10
Dec-10
Feb-11
Sep-10
Oct-10
Dec-10
Feb-11
Source: Bloomberg, SEB Source: Bloomberg, SEB
17
Credit quality trends

CREDIT QUALITY STABILISING – VOLUME GROWTH IN FOCUS
Credit quality in the Nordic region is showing signs of stabilising after a massive recovery in
2010. Earnings reports for the fourth quarter of last year confirmed the recovery with
maintained strong balance sheets, solid earnings improvement and improving sales growth.
With further efficiency improvements becoming more difficult to achieve, the key to future
earnings growth will be volume increases.
While the economies of the Nordic countries are growing strongly, most large corporates in
the region generate a majority of their sales in other geographical regions. Thus sales
growth could still be hampered by the exposure of corporates to the ongoing sovereign
turmoil, and their dependence on the speed and depth of the economic recovery at global
and regional levels.
The fourth quarter reports of these companies did however show strong sales and order
intake. In fact, 28 of the 34 Nordic companies in our coverage reported higher revenues
compared with the same period last year. Industrials achieved the strongest sales growth in
Q4-10, 19% on average, with further increases expected based on a strong order intake and
optimistic outlook statements from most companies generally.
Sales growth q-o-q Regional exposure by sector
25% 100%
90%
20%
80%
15% 70%
60%
10%
50%
5% 40%
30%
0%
20%
Q 6
07
Q 7
Q 7
Q 8
Q 8
Q 9
Q 9
Q 0
10
Q 0
10
Q 6
06
06
Q 7
Q 8
08
09
Q 9
0
1
0
1
2-
3-
2-
3-
4-
1-
2-
4-
1-
4-
1-
2-
3-
4-
1-
4-
1-
3-
2-
3-
-5% 10%
Q
0%
-10% Industrials Pulp and Paper Telecom Telecom Utilities, Oil and
equipment operators Gas
-15%
Europe North America South America Asia & Australia Africa & Middle East Other
Source:: SEB, company reports Source:: SEB, company reports
Emerging markets, especially in Asia, remained the major driver of growth even if companies
are increasingly seeing demand growth in North America and Europe. Companies’ ability to
capitalize on continued solid demand in emerging markets to offset slower growth in
developed countries will remain a key to solid operating performance. Over the next two
years, we expect GDP to increase by 6-7% in emerging economies, compared to Eurozone
growth of just below 2% and US growth of 3%-4%.
Slower margin expansion in 2011
Rebounding volumes in 2010 in combination with the realization of effects of cost cutting
executed in 2009 and 2010 resulted in substantially improved margins. Profitability
continued to improve in the fourth quarter as a result of higher capacity utilisation, cost
cutting in 2009 and 2010 and price increases. Of the 34 Nordic companies in our coverage,
23 posted higher absolute EBITDA and 21 reported improved EBITDA margins in Q4-10
compared to Q4-09. The Industrial and utility sectors continued to perform strongly while
margin pressure increased the most in the pulp and paper sector. However, compared to
consensus expectations overall profitability disappointed slightly due to increasing raw
material costs and negative currency effects in Sweden and Norway.
As we head into 2011 restructuring programs are winding down and further improving
efficiency and costs is becoming more difficult. To maintain strong margins, companies
must now increase production while maintaining control over costs as volumes increase. We
18
believe there is some uncertainty regarding to what extent the massive cost cuts in recent
years will prove to be permanent as some costs are likely to be reintroduced as production
levels increase. Some companies could expand margins slowly over 2011, for instance, in
cases where asset utilization in terms of both labour and production line capacity can
accommodate further volume growth.
Average EBITDA margin by industry FOS: Ability to raise prices to compensate for raw material costs
50% 70%
45%
60%
40%
35% 50%
30%
40%
25%
20%
30%
15%
10% 20%
5%
10%
0%
Industrials Consumer Pulp & Paper Telecom Utilities
products 0%
Very good Good Weak Very weak Not relevant
Q4 2008 Q4 2009 Q4 2010
Source: SEB, company reports Source: SEB
Rising raw material costs

Commodity prices have been rising since the summer and momentum has strengthened in
recent months. Price increases are driven by the strong growth in raw material intense
emerging market economies as well as the beginning recovery of more mature markets. In
addition, there has been a significant element of speculative trading contributing to the
development. Increasing geopolitical risks related to the development in the Middle East
could fuel prices further in the near term.
While this development will weigh on corporate profits going forward Nordic corporates are
quite confident that they can raise prices to offset the increasing costs, at least according to
outlook statements in the recently published quarterly reports. SEB’s Financial Officers
Survey also recently showed that around 70% of financial officers believe that their
company’s ability to raise prices to compensate for increasing costs is good or very good.
Rising raw material prices are a sign of economic growth and most likely the expected
continued rise in demand is the explanation for this positive stance.
FX headwinds could affect Swedish and Norwegian profits
A major trend in the Q4 reports was the negative impact of exchange rates on corporate
profitability, particularly in Sweden and Norway. SEB forecasts that both the SEK and the
NOK will continue to strengthen versus the EUR throughout the year, indicating that this
negative effect will continue in 2011. While companies seem to believe that they are able to
compensate for higher raw material costs by raising prices, this could be more difficult in the
case of negative FX effects as they do not affect all players equally. However, according to
recent surveys, including SEB’s Financial Officers Index, Nordic corporates do not appear too
concerned regarding the impact of a stronger currency. A stronger currency is usually the
natural consequence of a stronger economy, and possibly companies are expecting stronger
growth to compensate for currency effects.
Everything else being equal, the relative winners from a stronger SEK among companies in
our coverage are for example SAS, Electrolux and ABB, while the relative losers are, among
others, Atlas Copco, Securitas, Volvo, Sandvik, SKF and Ericsson.
19
FOS: What EUR/SEK level will problematic for your financial performance?
70%
60%
50%
40%
30%
20%
10%
0%
It already has 8.80 8.40 8.00 The level of the
exchange rate
is not critical to
our business
Source: SEB
Strong balance sheets…

After a period with conservative financial policies balance sheets are in very good shape.
During the fourth quarter of last year leverage multiples continued to decline in virtually all
sectors. In total 28 of the 34 companies in our coverage reduced net debt compared to the
previous quarter. In addition, with further improvements in 12-month rolling EBITDA, debt
multiples including net debt to EBITDA either declined or remained unchanged for 30 out of
34 Nordic companies. Only SKF, M-real, Norske Skog, and Elisa reported increases.
*Average net debt to EBITDA *Average net debt to EBITDA by industry
3.5 8.0
7.0
3.0
6.0
2.5
5.0
2.0 4.0
1.5 3.0
2.0
1.0
1.0
0.5
0.0
Industrials Consumer Pulp & Paper Telecom Utilities
0.0 products
2007 2008 2009 2010 2011E 2012E
FY 2008 FY 2009 FY 2010
Source: SEB, *Excluding companies in net cash position or with negative EBITDA Source: SEB, *Excluding companies in net cash position or with negative EBITDA
…but increasing shareholder pressure for dividends

The strong financial positions among Nordic corporates in combination with the strong
economic climate in the region are leading to increased shareholder pressure for more
aggressive financial policies. As a result we have seen a very clear trend toward higher
dividend distributions this year. Slightly more than 70% of companies raised their dividend
compared to last year and nearly 70% actually announced larger dividends than market
consensus expectations. A few companies, for example TeliaSonera and Atlas Copco, even
proposed share buy-backs. While higher returns to shareholders are generally considered a
negative from a credit quality perspective, the fact that companies now believe that the
need for a strong balance sheet is of less importance is a solid sign of strengthening
confidence in the economic recovery.
20
While increased shareholder distributions will weaken balance sheets the proposed
distributions are well within most companies’ current ratings’ capacity. We also believe
companies will be careful to protect their credit ratings as access to capital markets is
increasing in importance as banks struggle with higher funding costs and regulatory issues.
Proposed dividend level Dividend level vs. consensus expectation
80.00% 80.0%
70.00% 70.0%
60.00% 60.0%
50.00% 50.0%
40.00% 40.0%
30.00% 30.0%
20.00% 20.0%
10.00% 10.0%
0.00% 0.0%
increased unchanged decreased higher in line lower
Source: SEB, company reports Source: SEB, company reports
Merger and Acquisition activity increasing

As an alternative to paying out dividend or buying back shares, companies are increasingly
using their strong financial positions for acquisitions. In the Nordic region a number of larger
deals have been announced over the last few months, including ABB’s USD 4.2bn
acquisition of Baldor and Assa Abloy’s SEK 11bn bid for Cardo. While we expect M&A activity
to continue to increase we also believe companies will seek to avoid ratings downgrades by
balancing external growth opportunities with debt capacity, as in the case of ABB where
credit metrics will remain fully consistent with current ratings despite the substantial size of
the cash funded acquisition.
M&A volumes (12 months rolling) Cash and cash % of sales (aggregate)
400 80,000 14.0%
350 70,000 12.0%
300 60,000
10.0%
250 50,000
8.0%
USDbn
200 40,000
6.0%
150 30,000
4.0%
100 20,000
10,000 2.0%
50
0 - 0.0%
Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 2007 2008 2009 2010 2011E 2012E
Global North America Western Europe Total Cash/sales
Source: SEB, Bloomberg Source: SEB, company reports
Capex to remain at relatively modest levels

Capex is also starting to expand moderately following severe restraint in the last two years.
In the Nordic countries, capex for 2010 declined in all sectors except telecom. During the
second half of the year, the vast majority of companies began to increase capex investments
however. Particularly the industrial sector saw large increases, although coming back from
very low levels. With capacity utilisation rates still relatively low due to enhanced efficiency,
capex needs are not acute and we believe industrial companies can maintain a rather
moderate investment level in 2011. Global macro concerns also remain tangible enough that
most corporates are cautious in their outlooks on spending and investment.
21
Positive rating momentum in the Nordics has continued into 2011

Consistent with this improved performance, positive rating actions accelerated during 2010.
Overall, a total of 33 positive rating actions involving Nordic companies occurred in 2010
(including ten rating upgrades, twenty one outlook revisions, and three reviews for
upgrade), far outnumbering the total of 13 negative rating actions affecting nine Nordic
companies (comprising four downgrades, five outlook revisions and four reviews).
During the beginning of this year the positive ratings momentum in the Nordic region has
continued. Ratings upgrades have included S&P’s upgrade of Atlas Copco to A from A-,
Moody’s and Fitch’s upgrades of Carlsberg to Baa2 and BBB from Baa3 and BBB-, and
Moody’s and S&P’s upgrades of TDC to Baa2 and BBB from Ba2 and BB. The only negative
rating actions so far this year were Moody’s and S&P announcement of reviews of their
respective A2 and A ratings on Nokia.
Credit ratings of nearly two thirds of Nordic corporates are now back at levels consistent
with, or even better than, before the crisis (January 2007), as demonstrated in the chart
below. The companies that have a weaker rating include pulp and paper companies, Nokia
and SAS, which are all struggling with structural issues in their respective industries. Volvo,
Autoliv, and Sandvik also have lower ratings as they were severely impacted by the
recession. Swedish Match’s weaker ratings are on the other hand the result of a more
aggressive financial policy.
Rating level 2010 vs 2007 Outlook distribution, Nordic corporates
45% 90%
40% 80%
35% 70%
30% 60%
25% 50%
20% 40%
15% 30%
10% 20%
5% 10%
0% 0%
Higher Same Lower Positive Stable Negative
Moodys S&P Moodys S&P
Source: S&P, Moody’s Source: S&P, Moody’s
Few negative rating outlooks in the Nordics

The recent number of rating actions has also resulted in nearly 80% of credit ratings in the
Nordic region now having stable outlooks. This indicates that overall credit quality is
stabilising and the room for further upgrades is limited. Only six of the 34 companies in our
coverage have a negative outlook, which mostly reflects structural issues in some sectors or
acquisition activity.
The trend with upgrades easily outnumbering downgrades in the Nordic region is not the
same for the rest of Europe. Sovereign unrest in some areas and the resulting downgrades of
sovereign credit ratings is prompting downgrades of financial institutions and government
related entities in the affected regions.
22
Potential downgrade vs. potential upgrade ratio, Europe and U.S.
14
12
10
0
Jan-95 Jul-96 Jan-98 Jul-99 Jan-01 Jul-02 Jan-04 Jul-05 Jan-07 Jul-08 Jan-10
Downgrade vs. upgrade ratio (U.S.) Downgrade vs. upgrade ratio (Europe)
Source: S&P
Key figures and rating views
YE 2010 YE 2010
EBITDA margin Net debt/EBITDA Moody's S&P SEB
Industrials ABB 14.1% -1.2 A3/Stable A/Stable A/Stable
Assa Abloy 19.2% 1.5 - A-/CWN A-/Stable
Atlas Copco 24.2% 0.3 A3/Stable A/Stable A/Stable
Autoliv 16.3% 0.2 - BBB+/Stable BBB/Positive
Metso 10.6% 1.5 Baa2/Stable BBB/Stable BBB/Stable
Norsk Hydro 8.0% -1.5 Baa2/Stable BBB/Stable BBB/Stable
Sandvik 18.5% 1.6 - BBB/Stable BBB+/Stable
Scania 18.7% -0.2 - A-/Neg A-/Stable
SKF 18.7% 1.5 A3/Stable A-/Stable BBB+/Stable
Vestas 22.4% 0.7 - - BBB/Negative
Volvo 11.5% 0.9 Baa2/Stable BBB-/Stable BBB/Positive
Pulp and paper Holmen 19.7% 2.1 - BBB/Stable BBB/Stable
M-real 6.8% 4.8 B3/Pos B-/Stable B-/Pos
Norske Skog 6.8% 8.3 B2/Neg B-/Neg B-/Neg
Stora Enso 8.9% 2.8 Ba2/Pos BB/Pos BB/Pos
UPM 13.5% 3.1 Ba1/Stable BB/Stable BB+/Stable
Telecom Elisa 32.1% 1.6 Baa2/Stable BBB/Stable BBB/Stable
Ericsson 16.9% -1.5 Baa1/Stable BBB+/Stable BBB+/Neg
Nokia 11.5% -1.2 A2/RPD A/CWN BBB+/Stable
TDC 41.2% 2.1 Baa2/Stable BBB/Stable BBB/Stable
Telenor 28.9% 0.7 A3/Stable A-/Neg BBB+/Stable
TeliaSonera 33.7% 1.3 A3/Stable A-/Stable A-/Stable
Other AP Moeller Maersk 26.1% 0.9 - - A-/Stable
Carlsberg 16.4% 2.4 Baa2/Stable BBB/Stable
Electrolux 9.3% 0.2 - BBB+/Stable BBB/Pos
Investor na na A1/Stable AA-/Stable A+/Stable
SAS 7.4% 3.4 Caa1/Stable B-/Stable B/Stable
SCA 14.9% 2.4 Baa1/Stable BBB+/Stable BBB+/Stable
Securitas 8.1% 2.1 - BBB+/Stable BBB+/Stable
Swedish Match 32.3% 2.0 Baa2/Stable BBB/Stable BBB/Stable
Utility & energy DONG na na Baa1/Stable A-/Stable BBB+/Stable
Fortum 59.7% 2.7 A2/Stable A/Stable A-/Stable
Statkraft 60.4% 1.4 Baa1/Stable A-/Stable BBB+/Stable
Statoil 38.6% 0.5 Aa2/Stable AA-/Stable AA-/Stable
Vattenfall 27.8% 2.9 A2/Stable A/Neg A-/Stable
Source: SEB, Company reports
23
Nordic banks
DECLINING CREDIT LOSSES AND STRONGER EARNINGS PROSPECTS
Nordic banks will benefit from a strong economic environment as the region enters a period
of expansion following the recent economic crisis. Interest rates have begun rising and are
expected to continue to do so over the medium term, driving profits for Nordic banks. Signs
are also appearing which suggest that corporate lending is about to increase. The positive
effect of rising volumes will probably be partly offset by margin pressure as companies
refinance expensive loans taken in 2008 and 2009. However, slightly surprisingly, Nordea
reported increasing corporate lending margins in Q4-10 and guided a continued
improvement.
Retail lending volume growth will be negatively affected by higher interest rates although
the yield on existing business will improve. In addition, political measures to slow consumer
lending due to home price inflation and high credit driven consumption will slow lending
growth. Banks have also implemented more prudent loan-to-value restrictions themselves.
Credit losses by region, 2008-2010 Credit losses 2008-2010
7000 12000 Other

Russia/Ukraine
6000 Baltic
10000 Ireland/NI
5000 Norway
8000 Finland
4000 Denmark
Sweden
3000 6000
2000
4000
1000
2000
0
ay
en
er
c
I
ne
/N
ar
l ti
an
th
rw
ed
ai
-1000
Ba
nd
m
0
nl
O
kr
No
Sw
en
la
Fi
U
Ire
D
a/
2008 2009 2010

si
us
R
2010 2009 2008 -2000
Some Nordic banks were hit by the crisis due to their exposure to the Baltics (Swedbank and
SEB) and Ireland (Danske Bank). They have probably put the worst behind them with the
result that credit losses should continue to decline as asset quality improves. The large
Nordic banks reported new loan loss provisions of EUR 4.3bn in 2010 compared with EUR
11bn in 2009 and EUR 3.3bn in 2008. In 2011 loan loss reversals may even positively impact
the earnings of some banks as excess provisions are reversed.
Credit losses in Denmark remain higher than in other Nordic countries due to persistent
pressure in the small- and midsized corporate and real estate sectors, negatively affecting
asset quality. Danske Bank also continues to report credit losses in Ireland.
Nordic banks are well capitalised
All Nordic banks are better capitalised than the average for European large banks and
already comply with proposed Basel III core tier 1 ratios. All larger Nordic banks except
Danske Bank currently pay dividends again with target pay-out ratios generally of between
40% - 50% of net income. Pressure for higher shareholder returns could increase further, in
fact Swedbank is already planning share buybacks. However, we expect capital ratios either
to remain stable or improve marginally in 2011 as banks await further clarification of
regulatory requirements.
24
Basel III Core Tier 1 ratios
15%
14%
13%
Systemically important buffer
12%
11%
10%
Counter cyclical buffer
9%
8%
7% Capital conservation buffer
6%
5%
Minimum core equity
4%
3%
2%
1%
0%
Swedbank SHB DnB NOR SEB Danske Nordea European
Bank* large bank
average
Source: SEB Enskilda. *Post hybrid repayment
Swedish banks are however likely to be subject to tougher capital requirements sooner than
the Basel III rules suggest. The Swedish FSA has suggested that the core tier 1 ratio should
be 10%-12% and the total capital ratio 15%-16% within “a few years”. This reflects the
relatively large size of the Swedish banking sector. Currently, total assets of the four largest
banks (Nordea, Handelsbanken, Swedbank and SEB) amount to four times Sweden’s GDP.
However, we do not regard these higher capital requirements as cause for concern as the
Swedish banks already fulfil, or are close to fulfilling them. Discussions are also taking place
regarding raised risk weighting of residential mortgages. Currently, Swedish residential
mortgages are risk weighted at 5%-6%. Raising the weighting to 20% would probably be
manageable for Swedish banks.
Funding is normalising
Withdrawal of government support packages has not disrupted banking system stability or
materially affected access to funding for most banks in the Nordic region. Funding
normalised for Nordic banks in 2010, even though spreads were higher than they were prior
to the crisis. The relative strength of Nordic banks should continue to attract liquidity in
2011. However, they are relatively reliant on wholesale funding in the form of covered
bonds. Swedbank, Handelsbanken and Danske Bank have relatively low deposit-to-loan
ratios due to their substantial domestic mortgage lending.
Nordic banks, deposit-to-loan ratios Regulatory Tier 1 ratio, YE 2010
70 20
2010
18
60 2009
16
50 14
12
40
10
30
8
20 6
4
10
2
0 0
SEB OP- Nordea DnB NOR Danske Swedbank SHB Nykredit OP- DnB NOR Nordea SEB Nykredit Swedbank SHB Danske
Pohjola Bank Realkredit Pohjola Realkredit Bank
25
Regulation in focus – Denmark leading the way

Political efforts are intensifying to ensure that taxpayers’ money is not called on again to
support banks. Currently there are many different regulatory initiatives being discussed to
introduce various forms of bail-in debt at senior as well as subordinated levels. Concerning
Amagerbanken’s failure, Denmark was the first country to use a new policy framework
where senior debt holders and depositors share the cost of bank bail-outs.
In short, the Danish framework involves the creation of the Danish Financial Stability
Company (FSC), a joint venture between the Danish State and the Danish financial sector,
aimed at ensuring financial stability in Denmark, including winding-up distressed banks. If
such a bank does not fulfil adequate capital requirements it may choose to be wound up
under the FSC. The FSC will set up a subsidiary company to take over all assets of the
distressed bank and subsequently wind up the bank in a controlled and efficient manner.
The takeover sum is calculated as the total of the expected selling price of the assets at the
transfer date regardless of goodwill and other intangible assets subject to a deduction of
costs of disposal. So far 11 Danish banks have been taken over and are now subsidiaries of
FSC.
The Danish decision in February to wind-up Amagerbanken in line with the new framework
resulted in the bank’s equity, subordinated debt and hybrid core capital being effectively
wiped out. This produced an expected loss of around 41% for depositors (outside of
Denmark’s deposit-guarantee scheme) and providers of senior unsecured debt. During the
three months following the transfer further recoveries on the bank’s assets may result in
additional liabilities being transferred to the new bank, reducing the expected loss for
depositors and holders of senior unsecured debt.
Possible funding pressure for small Danish banks
The fact that depositors (above DKK 750,000) and senior creditors of Amagerbanken will
need to take a haircut could impose increasing funding pressure on smaller Danish banks.
Depositors now avoid having more than the insured minimum in any single Danish bank,
resulting in deposits being spread throughout the entire banking system. Large depositors
may also prefer to take their deposits abroad. We believe Danske Bank may be taking a
substantial share of deposits from smaller banks, which in turn may result in greater
concentration of deposits.
Several Danish banks also have significant refinancing requirements as the government’s
individual guarantees expire before the end of 2013. Total outstanding individual
guarantees amount to around DKK 150bn. The largest issuer of government guaranteed
debt is FIH Erhversbank with DKK 47.5bn. Amagerbanken had DKK 13.5bn in government
guaranteed debt at the time of its failure.
Rating downgrades exacerbate funding concerns
Recent downgrades of Danish banks due to loss of systemic support, and potential further
downgrades, could exacerbate refinancing difficulties. Following the bankruptcy and
transfer of Amagerbanken to the FSC, Moody’s downgraded the senior ratings of five Danish
banks (Danske Bank, Spar Nord Bank, FIH Erhversbank, Ringkjobing Landbobank, and
BankNordik). According to the rating agency, the combination of the enactment of Bank
Package III in October 2010 and its implementation in connection with Amagerbanken in
February 2011 demonstrates both the willingness and ability of the Danish government to
use resolution tools provided under new legislation to impose losses on depositors and
senior creditors in a bankruptcy.
Consequently, Moody’s has reduced the systemic support assumptions it uses for Danish
banks, downgrading senior debt and deposit ratings of five banks by between one and two
notches and removing systemic support completely from all but the four largest banks in
Denmark (Danske Bank +2 notches, Nordea Bank Denmark +2 notches, Jyske Bank +1
notch, and Sydbank +1 notch).
26
As the agency will further assess the government’s intentions, the debt ratings of the four
banks retaining a systemic uplift in their ratings have been placed on review for further
downgrade.
Could more Danish banks fail?
In September 2010 Amagerbanken raised DKK 898m in new capital and reported adequate
capital ratios for Q3-10 including a core capital ratio of 8.8%, a tier 1 ratio of 13.9%, and a
solvency ratio of 19.1%. However, in February 2011 an assessment by the bank’s newly
appointed management revealed the need for an additional DKK 3.1bn write-down resulting
in negative pro forma equity of DKK 654m. This raises the concern that there could be more
hidden losses at Danish banks. However, as approximately 25 large corporate clients
(primarily in the construction sector) were the main reason for the bankruptcies among
Danish banks and these clients are now bankrupt themselves, most losses should have
already been taken by the banking system.
The lacklustre performance by the Danish property market in recent years is also a major
reason for the troubles now facing smaller Danish banks. At national level Danish house
prices have fallen by around 15% partly due to oversupply and partly to speculation. The
decline is consistent with what has occurred in many other countries but nevertheless
distinguishes Denmark from its neighbours Sweden, Norway and Germany which have
enjoyed a much more favourable development.
Solid Danish finances limit risk to government guaranteed debt
Like many other countries Denmark also suffered a sharp deterioration in public finances
during the recent economic and financial crisis. The government has introduced austerity
measures which, in combination with improving growth, should begin to reduce the deficit
as a share of GDP in coming years. We expect the budget deficit to shrink to 2.5% of GDP by
end 2012. Total government debt is low by international standards and gives no cause for
concern. We expect Danish government debt to stabilize at 46% of GDP in 2011 and 2012.
Our overall conclusion is that Danish public finances are solid and that the government
should have no trouble meeting its guarantees to the financial sector.
General government budget balance House prices

10 10 120 120
Ecfin forecast
8 8 110 110
Index 2006=100
6 6 100 100
Percent of GDP
4 4 90 90
2 2 80 80
0 0
70 70
-2 -2
60 60
-4 -4 07 08 09 10
-6 -6
Norway US
90 92 94 96 98 00 02 04 06 08 10 12 Sweden UK
Germany Ireland
Denmark
Source. Ecowin Source. Ecowin
Limited contagion risks for now

Currently, the risk of contagion to Sweden and Norway is limited given the strength of the
housing market and the absence of domestic credit losses in those markets. Furthermore,
Sweden and Norway have not implemented similar bail-in regulations (Bank Package III).
However, the Danish framework is consistent with proposed EU legislation. It is therefore
likely that other countries will eventually follow suit.
27
Industrials
CONTINUED STRONG RECOVERY
Nordic industrials reported a continued strong recovery in Q4 2010 with operating results
for all companies in our coverage posting year-on-year top line growth, and all except SKF
achieving sequential sales increases. A total of 11 industrials in our coverage secured an
average 19% y/y increase in sales in Q4 with the strongest growth still seen in emerging
markets although sales in North America finally turned upward and strong sales growth was
also noted in Scandinavia and Germany.
Sales growth, y-o-y EBITDA margins, Nordic Industrials
100% 30%
80%
25%
60%
20%
40%
20% 15%
0%
10%
Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10
-20%
5%
-40%
0%
-60%
ABB Assa Atlas Autoliv Metso Norsk Sandvik Scania SKF Vestas Volvo
Abloy Copco Hydro
-80% -5%
ABB Atlas Copco Metso Sandvik Scania Volvo SKF Assa Aboloy Autoliv Vestas
Q4-08 Q4-09 Q4-10
Source: Company reports, SEB Source: Company reports, SEB
Strong profitability improvement

Sector profitability continued to improve in Q4 2010 due to a combination of effective cost
reductions last year and higher revenue although the improvement was smaller compared
with previous quarters as cost cutting effects leveled off, raw material costs increased and
negative FX effects primarily due to the strong SEK. The sector is heavily exposed to raw
material prices, especially industrial metals and is also very sensitive to fluctuations in the
Swedish krona against other large currencies including the US dollar and euro. While we
expect current high raw material costs to persist through the current year, we are confident
that industrial companies will at least be able to mitigate the negative effect by raising prices
and volumes. We expect slow margin improvement in 2011 as capacity utilisation will
improve and further, albeit limited, effects from cost cutting made in 2009 and 2010. The
sector should be able to meet strong demand without the need to make further large
investments in either production line capacity or labour. Although the sector has
successfully restructured operations and reduced expenses it may prove challenging for
companies to maintain a strict cost regime as volumes improve, which could exert pressure
on profitability.
Focus on growth – both organic and inorganic
Following a period in which companies have concentrated on reducing costs and
strengthening balance sheets in response to weak demand, most are now focusing more
aggressively on achieving both organic and inorganic growth. The next large sector
transaction is Assa Abloy’s proposed acquisition of Cardo for a total price of SEK 11.3bn. The
acquisition will result in a substantial increase in Assa Abloy’s leverage, a development
which led S&P to put its ratings on the company on CreditWatch negative.
Increasing shareholder pressure
Strong financial positions amongst Industrials together with a robust economic rebound
have begun to result in increasing shareholder pressure on companies to adopt more
aggressive financial policies. Proposed 2010 sector dividends will increase by almost 120%
compared with 2009 which is hardly surprising as the industrial sector cut dividends the
most in 2009. However, we expect companies to act cautiously and protect their current
28
credit ratings when considering large debt funded acquisitions and aggressive returns to
shareholders. This is particularly the case as access to capital markets is increasingly
important as banks struggle with higher funding costs and regulatory issues. Most industrial
companies also have very strong balance sheets and sufficient headroom within current
ratings to make further acquisitions. An example of a company protecting its credit rating is
Assa Abloy which has decided to propose a lower-than-expected dividend following its large
acquisition of Cardo in an attempt to avoid being downgraded.
Proposed dividend change per sector 2010 vs. 2009
140%
120%
100%
80%
60%
40%
20%
0%
y
r
om
l
ls
r
ns
ta
he
pe
g
a
er
To
io
tri
ec
ot
pa
ut
en
us
&
Te
it
&
d
st
&
er
In
lp
in
ity
m
Pu
al
su
til
i
U
nc
on
na
C
Fi
Source: Company reports, SEB
Strong order intake implying further sales growth

Order growth continued to develop strongly during the fourth quarter while the pace of
growth eased slightly. Volvo and Scania reported the strongest increases after being worst
affected by the downturn. In addition, late cyclical ABB has begun to report a recovery in
order intake. Most companies reporting order intake data achieved an order to sales ratio of
at least 1.0x, implying further sales growth during 2011.
Industrial order intake, % change y-o-y Truck order intake, % change y-o-y
70% 2068%
250%
50% 200%
150%
30%
100%
10% 50%
Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10 0%
-10% Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10
-50%
-30%
-100%
-50% -150%
ABB Atlas Copco Sandvik Metso Scania Volvo
29
Credit quality back at pre-crisis levels

Companies have continued to focus on maintaining strong balance sheets, using excess
cash to repay debt or strengthen cash reserves. The vast majority of industrials have
reduced their net debt significantly since the end of Q3 2009 due to strong cash flow
generation. In terms of debt multiples, net debt to EBITDA improved for all sector
companies except Norsk Hydro (which retains a substantial net cash position) and SKF (due
to its acquisition of Lincoln International) compared with Q3 2010 reflecting better earnings
and strong cash flow generation. At the same time, credit quality among industrials has
returned to pre-crisis levels.
Order to sales, Nordic Industrials Net debt to EBITDA, Nordic Industrials
1.6 6.0
5.0
1.4
4.0
1.2
3.0
1.0
2.0
0.8
1.0
0.6 0.0
ro
B
o
oy
liv
s
F
co
so
vi
a
i
lv
SK
AB
an
-1.0
yd
to
l
op
et
st
nd
Ab
Vo
0.4
Au
Ve
Sc
M
H
C
Sa
sa
sk
s
la
As
or
At
-2.0
N
0.2
Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4- Q1- Q2- Q3- Q4-
-3.0
07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10
ABB Atlas Copco Metso Sandvik Q2-10 Q3-10 Q4-10
Relative value, Nordic industrials

Nordic industrials are in general tightly priced although we believe some additional spread
tightening potential to be found in Volvo’s bonds, especially in the longer maturities, as the
company should continue to improve its profitability further this year. Even though Vestas’
bond is trading at attractive levels relative to peers, we advise investors to be cautious in
terms of adding exposure due to a weak company outlook with higher investment levels and
industry overcapacity negatively affecting cash flow generation this year. Maersk is also
trading slightly wider compared to peers due to the lack of a public rating and a high
exposure to shipping and energy. We still find the company’s bonds attractive on a relative
basis as the company now enjoys a very strong financial position and a streamlined cost
position. We also believe Metso’s 2014 bonds offer value compared to the 2014 bonds of
similarly rated peer Sandvik.
30
Relative value, Nordic Industrials
220
Vestas 4.625
200
180
160
140
ASW spread
120
Maersk 4.38
Volvo 5.0
100 Maersk 4.875
Volvo 9.875 Metso 7.25 Carlsberg 3.375
Investor 4.875
Carlsberg 6.0 Swedish Match 3.875
80
Securitas 6.5 Sandvik 6.875
Swedish Match 4.625
60 Investor 4.0
Volvo 7.875
ABB 4.625
40 SKF 4.25
Investor 6.125 Atlas Copco 4.75

20
0
0.0 2.0 4.0 6.0 8.0 10.0 12.0
Years-to-maturity
31
Oil & Gas – Benefits from a higher oil price

Recently, the oil price has increased sharply due to unrest in the Middle East and concerns
that the present turmoil in Libya may spread to more major oil producing countries (i.e. Iran,
Saudi Arabia and to some extent Algeria). However, the oil price increase has also benefited
from more fundamental factors including increased economic growth. It is important to
remember that because the oil market depends heavily on politically unstable parts of the
world, political risk is effectively a constant factor in determining its price. In any case, the
higher oil price will benefit upstream operations within an integrated oil sector and E&Ps
more focused on oil than natural gas. Consequently, many companies are likely to report
solid Q1-11 results.
So far this quarter, the oil price has averaged USD 100/bbl, an increase of 34% over the
corresponding period last year. An upward trend has been seen since August 2010, with
analyst consensus now expecting an oil price of around USD 95/bbl for 2011 (up from USD
85/bbl in December 2011), albeit still lower than forward contract prices in the market of
around USD 110/bbl for 2011. While the high oil price will benefit cash flow of oil producers,
companies will in the longer term still face pressure to increase production and expand their
reserves. As a result, we expect unconventional sources (including shale gas basins, oil
sands and gas-to-liquid projects) to attract increased interest, as they become far more
economical whenever crude prices are high.
In the case of Statoil, for example, a higher oil price is positive as the company intends to
increase its capex, exploration expenses and dividends this year. Based on these estimated
cash outflows and an USD 80/bbl after tax oil price forecast by management, operating free
cash flow would be negative in 2011 (if we exclude the sales proceeds from oil sand project
Kai Kos Dehseh and the Peregrino transaction). However, with an oil price above USD
100/bbl and cash proceeds from asset sales in 2011, operating free cash flow will be much
more positive than first anticipated.
CDS pricing development
In early January 2011, BP’s 5yr CDS started trading tighter than ENI after peaking as high as
+614bps in mid-June 2010. It still trade at a spread premium to the “best in class” (i.e. Total,
Statoil and Shell, all of which have CDS’ currently trading around 50-60bps), which we
believe it should do for some time. We also note that Statoil’s EUR bonds are still tightly
priced compared to the company’s CDS curve, but the basis is in line with the historical
average the last year.
Oil majors - 5yr CDS development Statoil Relative Value
350 80
300 70
60
250
50
Stoil 5.625 Mar 2021
Z-spread
200
40
150
30
Stoil 4.375 Mar 2015
100 20
10
50
0
0 0 1 2 3 4 5 6 7 8 9 10 11 12
Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Years to maturity
StatoilHydro Aa2/AA- BP A2/A ENI Aa3/A+ Total Aa1/AA
Source: SEB , Markit Source: SEB , Bloomberg
32
Pulp and paper

IMPROVING PRICE MOMENTUM
The 2011 outlook for the pulp & paper sector looks promising. Although structural issues
such as overcapacity will persist in some paper grades and the shift to digital media has
been more accentuated with the introduction of tablets such as the iPad, price momentum
for publication paper appears attractive. There are signs from the annual newsprint contract
negotiations that year-on-year increases will be around 15-20%. While not all discussions
have been finalised we expect price increases of at least 15%, and hopefully more. Recently,
magazine paper prices have increased by 6-9% driven by a recovery in advertising spending
while packaging prices, having already recovered last year, have stabilised at a high level.
Raw material costs pressure profitability
Negatively, increasing costs for raw materials such as wood, fibre, energy and chemicals will
continue to exert pressure on sector profitability in 2011 especially for producers with low
vertical integration. Nevertheless, we believe improving volumes and prices together with
cost cutting will offset high raw material costs this year. In addition, we expect gradual
earnings increases for well-diversified producers and packaging paper companies in line
with strong industrial production. M-real and Stora Enso will continue to improve earnings
supported by robust demand for packaging products while UPM will benefit most from
higher publication paper prices and its own superior cost position. However, we fear that
Norske Skog’s profitability will deteriorate further in 2011 as rising raw material costs will
more than offset the positive effects of higher newsprint and magazine paper prices given
the company’s low self sufficiency.
Continued focus on cash flow preservation
This year, the sector will continue to focus on cash flow preservation by maintaining a strict
capex regime. While we foresee slightly higher investments after low recessionary
expenditure, overcapacity still persists in various paper grades, limiting the need for large
increases in capital investments. Slightly improving earnings together with moderate capex
spending should result in a continued improvement in credit quality this year for most sector
companies.
Newsprint prices Pulp and recovered paper prices
650 800 1000 150
750
900 130
600
700
800 110
650
550
600 700 90
500
550
600 70
500
450
500 50
450
400 400 400 30

Jun-01 Aug-02 Oct-03 Jan-05 Mar-06 May-07 Jul-08 Sep-09 Nov-10 Apr-04 Nov-04 Jun-05 Jan-06 Aug-06Mar-07 Oct-07May-08Dec-08 Jul-09 Feb-10Aug-10
Newsprint (EUR/tonne) Newsprint (USD/tonne) Pulp (NBSK) Recovered paper
Source: FOEX, SEB Source: FOEX, SEB
All companies within the sector except Holmen reported slightly weaker year-on-year
profitability in Q4 as improving volumes and prices failed to offset higher prices for wood,
fibre, energy and recovered paper. Despite weaker earnings, Stora Enso and UPM reported
slightly lower leverage due to strong cash flow generation attributable to efficient working
capital management and decreased capex. Credit metrics for Norske Skog and M-real
weakened due to lower earnings.
33
EBITDA margins, Pulp and paper Net debt to EBITDA, Pulp and paper
25% 10.0
9.0
20% 8.0
7.0
15% 6.0
5.0
10% 4.0
3.0
5% 2.0
1.0
0% 0.0
Holmen M-real Norske Skog SCA Stora Enso UPM Holmen M-real Norske Skog SCA Stora Enso UPM
Q4-08 Q4-09 Q4-10 Q2-10 Q3-10 Q4-10
Long awaited consolidation in publication paper

In December, UPM announced its intention to acquire Finnish publication paper producer
Myllykoski and Rhein Papier for EUR 900m. The transaction will be financed by EUR 800m in
new debt and a share issue of five million UPM shares. In March, UPM said the targeted time
of the closing of the Myllykoski transaction has been postponed to Q3 2011 as the EU
Commission is opening an in-depth probe of the acquisition. In our opinion, the Myllykoski
deal represents a very positive fit for UPM on both a geographical and product basis and will
result in substantial synergy effects exceeding EUR 100m mainly from 2012, improving
company profitability. UPM’s publication paper market share will also increase to 29% from
22% improving its pricing power. The transaction will have a positive cash flow effect upon
completion. In addition, the acquisition will be strongly positive for the pulp & paper sector
by improving the capacity balance within the publication paper sector as UPM will close
down unprofitable capacity. The relative winner in the sector apart from UPM will be Stora
Enso (magazine paper: 21% of sales) and Norske Skog (34%). We maintain our view of UPM
as a BB+ credit with stable outlook. While the proposed acquisition of Myllykoski will result
in slightly increased leverage, potential cost savings are substantial resulting in improved
profitability. In our opinion, UPM’s credit ratings should be maintained despite increased
leverage although the headroom for further debt financed acquisitions remains very limited.
34
Relative value, Nordic pulp & paper
700
Norske Skog 7.0
600
500
ASW spread
400
300
M-real 9.25
200
Stora Enso 5.125

100
0
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0
Years-to-maturity
Relative value, Pulp & paper

We still see potential in M-real’s bond as the company should continued to improve its
profitability during 2011 through a strong performance in its packaging division. We also
expect M-real to continue to strengthen its credit metrics supported by strong cash flow
generation. Stora Enso’s bond has preformed strongly the last months and is now trading at
tight levels given its current BB rating. We would advise investors not to increase its
exposure in Norske Skog’s considering the company’s prospects of substantially
strengthening its credit profile in the near future is limited and further rating downgrades
can not be ruled out. In addition the company also faces refinancing risk in early 2012 and
has to rely on further asset disposals to meet its debt maturities.
35
Shipping/Offshore
In our previous edition of Nordic Credit Quarterly published in early December we noted a
decrease in the overall Clarksea Index from USD 16,000/day to USD 14,500/day. This trend
continued with the current 6-month average at USD 12,800/day, down a further 11%. Last
December, reports showed negative developments for Tankers and Bulkers, and positive for
Containerships. More recently, we note a continued negative trend for Tankers and Bulkers
with the Tanker Index down USD 1,200/day to USD 13,200/day, and the Bulker Index off
USD 3,100/day to USD 14,400/day. However, the Containership index has remained
relatively unchanged at around USD 8,300/day compared with a more usual pattern
showing a seasonal decline in the container segment during the first and fourth quarters.
AP Møller Maersk (APMM) posted FY-10 results in line with company guidance of USD 5bn,
though management also indicated a lower result in 2011 based on an expected 6-8%
increase in demand and supply growth in line with or slightly faster than demand. In 2010,
APMM obtained an average container rate of USD 3,064 per FFE, an increase of 29%
compared with the previous year. With supply expected to outstrip increases in demand,
rates may be expected to fall. Management has already indicated that a USD 100 per FFE
decrease in rates would have a negative USD 0.8bn impact on the company’s net income.
Since December 8, CDS prices for shipping offshore companies (as shown by Stena’s 5yr
CDS) have widened by 15bps to 435/436, while the more general iTraxx Crossover index has
tightened by 61bps to 396/397. This development reflects the continued decline in some
shipping and offshore segments as illustrated by the various indices above, compared with
several other industrial sectors which have enjoyed either a stable or positive trend.
5yr CDS Development: Selected Shipping/Offshore APMM 2014 and 2017 bond spreads
700 300 200

600 250
180
500 200
150 160
m/s spread
400
100
300 140
50
200 0 120
100 -50
100
0 -100
Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- 80
10 10 10 10 10 10 10 10 10 10 11 11 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11
Crossover Vs Stena (rhs) Stena 5yr CDS Itraxx Xover APMM 4.875% 2014 APMM 4,375% 2017
Source: Bloomberg, SEB Source: Bloomberg, SEB
Growth is back on the agenda for industrialized shipping

In our latest Nordic Credit Quarterly we observed that, following the release of Q3-10 results
in November, the yield spread on APMM 4.875% 2014 and 4.375% 2017 bonds had
widened to m/s +140bps and m/s +190bps in December respectively. Subsequently, spreads
have tightened significantly with the 4.875% bond currently quoted below m/s +100bps and
the 4.375% bond at m/s +112bps. Management guidance on 2011 results was very wide
(“below 2010 results”), highlighting the considerable uncertainty still prevalent in the
market. However, we still believe the company enjoys a very strong financial position with a
5yr low debt to EBITDA ratio of 1.1x and 5yr high funds from operations to debt ratio of
59%, both in 2010, representing a solid platform for future growth. We regard as particularly
positive the fact that APMM has established such a position without suffering any decrease
in customer satisfaction.
36
Nevertheless, with the company gearing up for increased investments particularly in

container shipping (e.g. it recently ordered a further 10 vessels) and in oil exploration and
development, its credit profile is unlikely to continue to improve at the same rate going
forward. Instead, we expect APMM to accept the addition of both business- and financial-
related risks to its portfolio.
High oil prices is not necessarily negative for shipping/ offshore companies
Generally, we retain a weak outlook for commodity-based shipping sectors including tank
and drybulk, as they remain exposed to a supply overhang. However, we are more positive
concerning industrialised shipping segments such as containers and car carriers which
should benefit from a continued global economic recovery. As regards the offshore sector
we remain optimistic for several reasons including solid oil fundamentals. Concerning
commodity prices, normally their increase would imply improving demand, which should be
positive for shipping, as their most commonly used means of transportation. However,
freight rates have not followed the recent sharp increase in commodity prices, and for
several reasons. Firstly, the sharp increase in prices of commodities is not solely due to rising
demand but also more temporary shortfalls in supply as a result of the negative output
effect of adverse weather conditions. Secondly, shipping supply has continued to outstrip
increases in demand due to deliveries from the industry’s large order book (established
before the recent financial crisis). This overall situation has decoupled the link between
commodity prices and shipping rates.
Particularly in the case of APMM, the conglomerate enjoys a balanced oil price exposure.
Although negative for the container segment due to higher bunker prices, increasing oil
prices are obviously positive for Maersk Oil’s operations. The company has indicated that a
USD 10 increase in the oil price would generate a net positive profit contribution of USD
0.2bn. Since, for the purposes of APMM’s 2011 results guidance, the company has assumed
an average oil price of USD 90 per barrel, the current price of around USD 110 per barrel
should have a positive USD 0.4bn impact compared to current management expectations.
37
Telecom
OPERATORS: STABLE CREDIT QUALITY OUTLOOK FOR 2011
We expect the overall credit quality of Nordic telecom sector companies to remain stable
this year. Most late cyclical telecom operators reported results in line with expectations
during Q4 2010 and we anticipate a further improvement in results based on sustained cost
control and continued strong growth in Asia and Mobile services. Guidance from all
operators reflected positive market sentiment. TeliaSonera, TDC and Elisa project slightly
improved EBITDA margins compared to last year while Telenor forecasts no change
compared to 2010.
EBITDA margins, Nordic Telecoms Net debt to EBITDA, Nordic Telecoms
50.0% 4.0
45.0%
40.0% 3.0
35.0%
2.0
30.0%
25.0%
1.0
20.0%
15.0%
0.0
10.0% Ericsson Nokia Elisa TDC Telenor TeliaSonera
5.0%
-1.0
0.0%
Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10
-2.0
Elisa Ericsson Nokia Telenor TeliaSonera TDC
Q2-10 Q3-10 Q4-10
Strong balance sheet enables acquisitions

All telecom operators enjoy strong balance sheets. Telenor completed its buyback
programme in December, while TDC and TeliaSonera announced plans to repurchase shares
worth DKK 9bn and SEK 10bn respectively during 2011. We expect several acquisitions and
further consolidation within the sector. However, despite being two of several companies
bidding for Polkomtel in Poland, we believe both TeliaSonera and Telenor will be
unsuccessful in view of the expected high final price of Polkomtel. All telecom operators
except TDC proposed a higher than expected dividend per share, further underlining their
strong balance sheets and positive outlook.
TeliaSonera or Telenor to acquire Polkomtel?
The Polish telecom company Polkomtel (-/BBB+) is being sold and has attracted several
bidders, including TeliaSonera (A3/A-) and Telenor (A3/A-). Despite a current indicative
price of around EUR 4bn we expect the final price to be higher due to intense interest in the
company from private equity groups including Blackstone (not rated), Bain Capital (not
rated), Prudential (not rated) and KKR (not rated), as well as Polish media businessman
Zygmunt Solorz-Zak. Polkomtel holds a 30% share of Poland’s telecom operator market and
is joint market leader with Orange (not rated) and Polska Telefonia Cyfrowa (not rated).
However, the country’s mobile telecom market is fiercely competitive and operates in a
difficult regulatory environment.
We see no direct synergies for TeliaSonera even if it were to acquire Polkomtel. Furthermore,
due to its planned share buy-backs of SEK 4bn we regard TeliaSonera as already weakly
positioned within their current rating. We therefore believe that if TeliaSonera were to
acquire Polkomtel it would likely result in a one notch downgrade of its credit ratings.
TeliaSonera’s management has indicated that it is comfortable with a higher net debt to
EBITDA ratio provided it has a clear strategy to reduce it again. The company has
communicated that it targets “a solid investment grade long-term credit rating (A- to BBB+)
to secure the company’s strategically important financial flexibility for investments in future
growth, both organically and by acquisitions”. If TeliaSonera were to consider acquiring
38
Polkomtel at a price of EUR 4bn (SEK 36bn) this would imply an adjusted net debt to EBITDA
ratio of 2.7x at end-2011 and 2.6x at end-2012, both well above the range consistent with
the company’s present ratings.
It is not surprising that Telenor looks into all possible M&A opportunities within its
geographical focus area. However we do not expect Telenor to end up buying Polkomtel
since the company is facing large funding requirements in its Indian operation and also the
current litigation process with Vimpelcom (Ba2/BB+), which may end with Telenor injecting
some USD 2.8bn into the company. As with TeliaSonera we believe that the potential
synergies by acquiring a polish mobile operator are fairly small for Telenor.
TDC upgraded by all three rating agencies
TDC’s ratings have now been raised by all three credit rating agencies to investment grade.
S&P upgraded its rating on TDC to BBB from BB with stable outlook. Further, Fitch assigned
the company the same rating while Moody’s upgraded TDC from Ba1 to Baa2. Following
completion of its recent capital restructuring project, including an IPO, all debt is being held
by TDC as the company has repaid its outstanding HY notes issued by the company’s parent,
NTC (B1/BB). The post-IPO net leverage is 2.1x in line with management’s new financial
policy limiting net leverage to 2.1x.
We regard TDC as a BBB credit with stable outlook. Although the previous owners, a private
equity consortium, maintain a 59.1% stake we believe associated risks have diminished. The
consortium has clearly communicated its intention to exit the company entirely and to leave
it in a solid financial position. TDC’s business risk profile has improved substantially as a
result of both the private equity consortium’s partial exit and divestments of non-core
operations outside Nordic telecom markets. Further, profitability has increased through cost
cutting and now compares favourably with Nordic peers. We also believe TDC will be able to
sustain its current EBITDA margin by continued cost reductions.
TDC issued three bonds in mid-February worth a total of EUR 2.25bn to refinance the
company’s EUR 2.4bn senior secured bank debt. Bonds offered comprised two EUR 800m
tranches with maturities of four and seven years priced at m/s+90 and m/s +120
respectively. The offering also included a 12 year GBP 550m tranche priced at gilts +160. All
bonds were priced at the tight end of guidance.
EQUIPMENT MANUFACTURERS
Telecom equipment manufactures operate in a more cyclical environment than telecom
operators and we saw the first gradual improvements in 2H 2010. In Q4 2010 Ericsson
confirmed that the growth mode within its mobile network segment, Networks was not a
.not a one-time happening in Q3 2010. We expect that the development in mobile
broadband equipment during Q4 2010 to continue to benefit Ericsson’s top line in 2011. The
cost of rolling out 3G in India and modernizing networks should continue to adversely affect
operating margins during H1 2011. We believe cost reductions will remain a key priority
going forward to improve profitability. Even if Nokia grew NokiaSimens during Q4 2010 it is
still facing a very challenging situation with gross margin at 26.4% compared to Ericsson’s
37% and we do not expect an immediate or significant earnings recover in the near.-to
midterm.
Nokia – survival of the fittest
In terms of what Charles Darwin and Herbert Spencer would call the “survival of the fittest”
there is currently an ongoing process of “natural selection” taking place amongst telecom
equipment manufactures within operating systems. Those best equipped to operate
effectively in their immediate local environment will have a greater chance of survival than
those “in best physical shape”. Using this analogy, we see dinosaurs such as Nokia, big and
strong but having a hard time adapting to the changing environment increasingly
dominated by innovative, adaptive, fast moving mammals such as Apple and Google who
are modifying their operations and products to meet the needs of this new “world” which
Nokia’s Stephen Elop has named “ecosystem”. Competition for new business is intensifying
39
affecting both smart- and mobile phones with Nokia responding too slowly to secure large
enough shares of either or both markets. The question on everybody’s mind now concerns
whether they can adapt fast enough to survive? Will the company’s new recently announced
strategy succeed or will Nokia be forced to restructure and reshape itself entirely? Given the
maturity of the sector, we are concerned regarding growth in the mobile infrastructure
market, tough pricing conditions and lower capital expenditure in major emerging markets
such as China and India. Currently, both Nokia and Ericsson still benefit from substantial net
cash positions. However both companies have endured pressure on profitability. If they do
not start showing even slight improvements in coming quarters, we believe credit ratings
could eventually come under pressure.
Increasing risk of one notch downgrade for Nokia
Nokia announced plans in mid February to team up with Microsoft to build a new platform
for its smartphones while avoiding an exclusive partnership. Nokia said that it had a clear
plan to differentiate itself from its competitors using the Microsoft platform as well. While
Nokia will need to pay royalties to Microsoft for use of the company’s platform, the company
has stated that it will cut costs by reducing employees worldwide while slashing R&D
spending substantially. Nokia has not yet provided a precise figure on how much costs will
be cut but has declared that it expects growth in Devices & Services to outstrip the market
from 2012 and forecasts a non-IFRS margin of at least 10%. We believe the vague, non-
specific outlook provided by Nokia implies considerable uncertainty with several years of
transition likely to hurt both sales and profitability. Also of concern is the fact that
Microsoft’s phone platform currently holds only a low single digit share of the total
smartphone market, far behind rivals Google and Apple, suggesting that such technology
has so far failed to excite much consumer interest. While Nokia has not provided an exact
product timeframe it has declared its intention to ship a substantial number of phones in
2012. The Symbian platform will remain its most significant platform pending completion of
its transition to Windows phones.
Furthermore, Nokia also faces challenges outside the Smartphone segment including
significant competition within its Mobile Phone business where we see increasing price
pressure. Nokia is clearly losing market position in its core area. CEO Stephen Elop said
during the company’s capital markets day, that competition within Mobile Phones is
increasing and that Nokia will invest in the business. However, we see a significant risk that
the company will end up as a low-end device vendor with lower revenues and poorer gross
margin if it does not succeed with its new Smartphones strategy. Indeed, we see an
increasing risk of a one notch downgrade due to deterioration in Nokia’s business risk
profile.
Relative value, Nordic telecoms
Recently, Nokia’s 2014 and 2019 bonds and its CDS have been trading wider than many
other less well rated Nordic names including Ericsson (Baa1/BBB). We regard this as fully
justified given the problems Nokia is facing within both smartphones and its traditional
mobile phone segment. We expect the current gap to be sustained until the company clearly
demonstrates relevant improvements. However, we see many remaining challenges in both
high-end smart phone market and mobile phones to overcome and we still see risks of
further disappointments and thus expect that Nokia’s spreads will tighten.
Amongst Nordic telecom bonds TeliaSonera (A3/A-) and Telenor (A3/A-) currently trade at
similar levels which we regard as fair. TeliaSonera is, in our view, a slightly stronger credit
but both companies risk being downgraded if either one would acquire Polkomtel. TDC’s
recently issued bonds also trade at fair levels given company’s weaker profile and we have
assigned a marketweight recommendation to those bonds.
40
Relative value, Nordic telecoms
140
Nokia 6.75
120
TDC 4.375 TeliaSonera 3.875
100 Ericsson 5.375

TeliaSonera 4.75
Elisa 4.75
TDC 3.5 TeliaSonera 4.25
Nokia 5.5 Telenor 4.125
ASW spread
80
Telenor 4.875
TeliaSonera 4.75
60 Ericsson 5.0
TeliaSonera 5.125 TeliaSonera 4.125

Telenor 4.5
40
Telenor 5.875
20
TeliaSonera 3.625
0
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0
Years-to-maturity
41
Utilities
MAJOR CHALLENGES OVER THE NEXT FEW YEARS
The utility sector faces major challenges over the coming years from various political and
legal changes including a proposed fuel tax in Germany. Further, the increased cost of CO2
emissions in 2013 may also create a more difficult market environment over the next three
years and raise availability concerns.
Profitability of commodity price dependant utilities such as Vattenfall and Dong may slightly
decrease this year as raw material costs have beginning to raise rapidly the last couple of
weeks. Water reservoirs remain at historical lows and we expect hydropower production in
the Nordic area to be lower compared to 2010 possibly putting some earnings pressure on
Vattenfall and Fortum while we believe Statkraft to be less affected due to their large
storage capacity. Available nuclear capacity is also likely to continue to be restricted in 2011
although more nuclear plants running at full capacity compared with 2010. However, we
expect continued outages in Sweden this year to have a negative impact on Vattenfall’s
nuclear production.
We forecast further healthy cash flow generation in 2011 due to a sustained focus on
reducing working capital and lowering capital expenditure for most sector companies.
However, Fortum’s Russian investment program will accelerate this year with a negative
impact on free cash flow generation. In the long term we believe investment expenditure
may exert pressure on financial profiles given major expenditure requirements in
accordance with EU directives regarding renewable energy. Credit quality should improve
slightly next year, while ratings are likely to be maintained.
Nordpool spot average system price
90
80
70
60
EUR/MWh
50
40
30
20
10
0
ov
ov
n
n
n
ar
ar
p
ay
ay
Ju
Ju
Ja
Ja
Ja
Se
Se
M
M
N
M
M
09
10
10
11
09
09
10
10
09
10
09
10
09
Average system price
Source: Nordpool, SEB
Solid Q4 earnings
Utilities posted solid Q4 2010 earnings with improving year-on-year EBITDA margins. The
strong results were driven by the cold winter which together with low nuclear power
generation fuelled prices. Vattenfall reported a drop in both revenues and EBIT due to a
goodwill write down of SEK 4.3bn, mainly relating to its Benelux unit. Credit metrics such as
the net debt to EBITDA ratio improved in Q4 2010 compared with Q3 2010 for all sector
companies except Vattenfall.
42
Statkraft receives capital injection – credit neutral

Statkraft’s net debt to EBITDA ratio improved to 1.3x in Q4-10 from 2.9x in Q3-10 due to a
NOK 14bn capital injection granted by the Norwegian government in December. While it will
not result in a sustained improvement in credit metrics as Statkraft must raise further debt
to finance its investment plans of NOK 70-80bn between 2011 and 2015, we believe the
company remains committed to maintaining its current credit ratings.
EBITDA margins, Nordic utilities Net debt to EBITDA, Nordic utilities
90.0% 3.5
80.0%
3.0
70.0%
2.5
60.0%
50.0% 2.0
40.0%
1.5
30.0%
1.0
20.0%
10.0% 0.5
0.0% 0.0
Q1-08 Q2-08 Q3-08 Q4-08 Q1-09 Q2-09 Q3-09 Q4-09 Q1-10 Q2-10 Q3-10 Q4-10 DONG Fortum Statkraft Statoil Vattenfall
DONG Fortum Statkraft Statoil Vattenfall Q2-10 Q3-10 Q4-10
Vattenfall’s divestment of non-core assets could generate SEK 3bn

We regard Vattenfall’s leverage as stretched for its current rating but believe the tendency
towards de-leveraging will continue with potential divestments of non-core assets during
the year. During the company’s Capital Markets Day in September the key message from
management was that it would focus on creating financial flexibility. Further, Vattenfall had
previously expressed an interest in divesting non-core assets (e.g. in Denmark, Finland,
Poland and Belgium). Such potential sales could generate proceeds of around SEK 3bn. We
believe Vattenfall will seek to divest its non-core assets this year, hopefully enabling a
continued improvement in the company’s financial profile.
43
Relative value, Nordic utilities
120
TVO 6.0 DONG 6.5 DONG 4.875

100
Vattenfall 5.375
Statkraft 6.625
80
DONG 4.0 Fortum 6.0 Vattenfall 6.25
Statkraft 4.625 Vattenfall 6.75
ASW spread
60 DONG 4.875
Statkraft 5.5 Vattenfall 5.25
Statoil 5.625
Fortum 4.5
40 Vattenfall 4.25
DONG 3.5 Fortum 5.0 Fortum 4.625
Vattenfall 5.75
Vattenfall 4.125 Statoil 4.375
20
0
0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0
Years-to-maturity
Relative value, Nordic utilities

In general, Nordic utilities are trading at tight levels. However, we still regard TVO’s
(Fitch: A-) bonds as attractively priced while noting their relative illiquidity. We also notice
that Dong’s 2021 maturity is expensive compared to its 2019 maturity. There has been very
little activity in Dong the last months and we do not expect to see any large widening of the
2021 bond the coming weeks.
44
Nordic bond recommendations

BONDS Asset swap Recommendation
CONSUMERS Cpn Maturity Bid Ask Mid Weight
Swedish Match 4.625 28/06/2013 71 59 65 Marketweight
Carlsberg 6 28/05/2014 89 78 83 Marketweight
Carlsberg 3.375 13/10/2017 96 86 91 Marketweight
Swedish Match 3.875 24/11/2017 91 81 86 Marketweight
INDUSTRIALS Cpn Maturity Bid Ask Mid Recommendation
Investor 6.125 05/03/2012 29 18 23 Marketweight
Volvo 7.875 01/10/2012 62 50 56 Marketweight
Securitas 6.5 02/04/2013 72 61 66 Marketweight
ABB 4.625 06/06/2013 40 33 37 Marketweight
SKF 4.25 13/12/2013 39 28 33 Underweight
Sandvik 6.875 25/02/2014 73 70 72 Marketweight
Volvo 9.875 27/02/2014 96 89 92 Overweight
Atlas Copco 4.75 05/06/2014 35 26 31 Underweight
Metso 7.25 10/06/2014 98 87 92 Overweight
Maersk 4.875 30/10/2014 104 93 98 Overweight
Vestas 4.625 23/03/2015 232 177 204 Marketweight
Investor 4.00 14/03/2016 62 52 57 Marketweight
Volvo 5.00 31/05/2017 111 102 106 Overweight
Maersk 4.38 24/11/2017 117 108 113 Overweight
Investor 4.88 18/11/2021 85 77 81 Underweight
TELECOMS Cpn Maturity Bid Ask Mid Recommendation
TeliaSonera 3.625 09/05/2012 17 6 12 Marketweight
Telenor 5.875 05/12/2012 25 13 19 Marketweight
Ericsson 5 24/06/2013 66 57 61 Marketweight
Nokia 5.5 04/02/2014 86 80 83 Underweight
Elisa 4.75 03/03/2014 100 89 95 Overweight
TDC 3.5 23/02/2015 88 81 84 Marketweight
Ericsson 5.375 27/06/2017 102 95 99 Marketweight
TDC 4.375 23/02/2018 110 104 107 Marketweight
Nokia 6.75 04/02/2019 129 120 124 Underweight
UTILITIES & ENERGY Cpn Maturity Bid Ask Mid Recommendation
DONG 3.5 29/06/2012 38 27 33 Marketweight
Vattenfall 4.125 18/03/2013 31 22 27 Marketweight
Fortum 5 19/11/2013 39 31 35 Marketweight
Fortum 4.625 20/03/2014 39 32 35 Marketweight
Statkraft 5.5 02/04/2015 59 48 54 Marketweight
Statoil 4.375 11/03/2015 32 22 27 Underweight
DONG 4 16/12/2016 80 71 75 Marketweight
Fortum 4.5 20/06/2016 53 46 49 Marketweight
TVO 6 27/06/2016 107 98 103 Overweight
Fortum 6 20/03/2019 78 71 75 Marketweight
Statoil 5.625 11/03/2021 56 46 51 Marketweight
HIGH-YIELD Cpn Maturity Bid Ask Mid Recommendation
M-real 8.75 01/04/2013 265 230 248 Overweight
Norske Skog 7 26/06/2017 660 635 648 Underweight
Stora Enso 5.125 23/06/2014 133 123 128 Underweight
Source: SEB
45
Nordic CDS recommendations

5-year CDS
CONSUMERS Bid Ask Mid Recommendation
Carlsberg 79 92 86 Sell protection
Electrolux 64 67 65 Neutral
SCA 61 66 63 Neutral
Swedish Match 63 68 65 Neutral
INDUSTRIALS Bid Ask Mid Recommendation
ABB 53 59 56 Neutral
Assa Abloy 49 53 51 Neutral
Atlas Copco 48 52 50 Neutral
Investor 58 64 61 Sell protection
Metso 105 113 109 Sell protection
Scania 64 68 66 Neutral
Securitas 78 84 81 Sell protection
SKF 59 67 63 Neutral
Volvo 101 103 102 Sell protection
TELECOMS Bid Ask Mid Recommendation
Ericsson 72.9 75.2 74 Neutral
TDC 71.3 79.7 75 Neutral
Nokia 114 117 115 Buy protection
Telenor 65.5 70.7 68 Neutral
TeliaSonera 64.1 68.4 66 Neutral
UTILITIES & ENERGY Bid Ask Mid Recommendation
DONG 61 66 64 Neutral
Fortum 50 55 52 Neutral
Statoil 56 60 58 Neutral
Vattenfall 58 62 60 Neutral
CROSSOVER Bid Ask Mid Recommendation
M-real 365 380 373 Sell protection
Stora Enso 170 180 175 Neutral
UPM-Kymmene 183 193 188 Sell protection
UP FRONT TRADING Bid Ask +bps running Recommendation
Norske Skog 3.75 4.25 500 Buy protection
SAS 3.75 4.5 500 Neutral
Source: SEB
46
SEB’s Financial Officers Index

FUTURE EXPECTATIONS REMAIN HIGH
SEB’s Financial Officers’ Index is a unique quarterly survey addressed to over 100 of the
largest companies in Sweden and Norway. The latest survey in February 2011 was the
twentieth publication in Sweden and the fourth publication in Norway. The survey covers
areas such as business climate, strategic investments, employment, views on currencies and
credit spreads, financial strength, and lending attitudes amongst financial institutions.
SEB’s Financial Officers’ Index for February decreased slightly to 65 from 66 (in November)
in Sweden and to 64 from 65 in Norway. The slight decline partly reflects less optimism
concerning credit spreads and equity markets, probably due to economic instability in
several European countries and their respective banking systems, as well as unrest in the
Middle East. However, the overall picture remains positive with most companies regarding
their business and financial positions as favourable and express willingness to make more
investments going forward. They also believe funding could be easily obtained from banks,
if needed.
 CFOs in both Sweden and Norway continue to rank demand as their greatest
concern for the future. However, while Swedish respondents are much more
worried by rising raw material costs, Norwegians focus on the lack of a qualified
workforce and high labour costs.
 Some 65% of Norwegian CFOs expect to employ more staff in Norway in the next
six months while only 22% of their Swedish counterparts have the same
expectation.
 In Norway fewer financial officers (41%) now expect their companies to raise
prices, in sharp contrast to Sweden, where an increasing share of respondents
(71%) expect to raise prices during the next six months.
Financial Officers Index, Sweden Financial Officers Index, Norway
90 90
80 80
70 70
60 60
50 50
40 40
30 30
20 20
10 10
Index value Business Financial Lending Counterparty Credit Index value Business Financial Lending Counterparty Credit Stock Profitability
climate position willingness risk spreads market
climate position willingness risk spreads
Source: SEB. Grey columns represent the index level for August and November 2010 Source: SEB. Grey columns represent the index level for August and November 2010
47
Quarterly report dates

Company Q1-11 Company Q1-11
Securitas 05-Apr SBAB 29-Apr
Industrivärden 05-Apr SCA 29-Apr
Investor AB 12-Apr Norsk Hydro 29-Apr
SKF 19-Apr SAAB 29-Apr
Tele2 19-Apr SSAB 29-Apr
TeliaSonera 19-Apr Sandvik 03-May
Husqvarna 19-Apr SEB 03-May
Atlas Copco 20-Apr TDC 04-May
Autoliv 20-Apr Telenor 04-May
Elisa 20-Apr Vestas 04-May
Stora Enso 20-Apr M-real 04-May
Trelleborg 20-Apr Statoil 04-May
Nokia 21-Apr Swedish Match 04-May
Alfa Laval 27-Apr Hafslund 05-May
Electrolux 27-Apr Norske Skog 05-May
Ericsson 27-Apr Skanska 05-May
Fortum 27-Apr Vasakronan 05-May
Scania 27-Apr Vattenfall 05-May
Volvo 27-Apr Holmen 06-May
ABB 27-Apr DnB NOR 06-May
Handelsbanken 27-Apr Danske Bank 10-May
Nordea 28-Apr SAS 10-May
Swedbank 28-Apr AP Moeller Maersk 11-May
UPM-Kymmene 28-Apr Carlsberg 11-May
Specialfastigheter 28-Apr MTG 18-May
LF Bank 29-Apr Statkraft 19-May
Assa Abloy 29-Apr Dong 20-May
Metso 29-Apr
Source: Bloomberg, company reports
48
49
50
51
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SEB Report: High Yield Still Our Preferred Choice

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WEDNESDAY

Credits cushioned by strong fundamentals 9 MARCH 2011

HIGH YIELD STILL OUR PREFERRED CHOICE

Source: SEB’s Financial Officers Survey Source: SEB, Markit

Ebba Lindahl Jonas Ranneby

Sales Stockholm Sales Helsinki

This report was published on March 9, 2011

-3% 125 320

Source: SEB, Markit, Bloomberg Source: SEB, Markit

iBoxx Investment grade spread iBoxx High yield spread

iBoxx Corp IG Average default implied IG iBoxx HY Average default implied HY

Source: SEB, Markit Source: SEB, Markit

Geopolitical issues not a major threat to credit spreads

Source: SEB, Bloomberg

120 24 120 275

105 105 285

Source: SEB, Bloomberg Source: SEB, Bloomberg

Corporate fundamentals remain solid

IG spread as percent of government yield HY spread as percent of government yield

Source: SEB, Markit Source: SEB, Markit

iBoxx Corp IG iBoxx HY

Source: SEB, Markit Source: SEB, Markit

Banking regulation remains in focus

Source: SEB, Moody’s

We continue to like Financials

5yr CDS spreads around time of downgrade

Source: SEB, Bloomberg

Sr Financials vs. Sr Non-Financials

Sr Financials vs. Sr Non-Financials

Source: SEB, Markit

HY still our preferred choice

Source: SEB, Moody’s

Default rate model

European speculative-grade default rate forecast US speculative-grade default rate forecast

Source: SEB, Moody’s Source: SEB, Moody’s

Speculative-grade default rate forecast December 2011

Source: S&P Source: SEB, Bloomberg

Primary market activity

Source: SEB, Bloomberg

Several Nordic names issue in EUR

Nordic bond issues in EUR

Source: SEB, Bloomberg

Source: SEB, Bloomberg

Corporates Financials Gov./Muni. owned Gov. guaranteed

Source: SEB, Bloomberg

Source: SEB, Bloomberg

NOK: PRIMARY ACTIVITY STILL DOMINATED BY HIGH YIELDS

CCC & lower

Investment Grade High Yield Percentage of HYs

Source: SEB, Stamdata Source: SEB

100 Hafslund oljeselskap

Source: SEB Source: SEB

Norwegian primary and secondary market spreads in Q1-11

Macro economic outlook

2009 2010 2011E 2012E

Source: OECD, SEB

Superior Nordic fundamentals continue to pay off

Source: Bloomberg, SEB Source: Bloomberg, SEB

Credit quality trends