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Scandinavian Credit Fund I AB (publ) reports a NAV rate for February of 100.45. That's an increase of 0.28 %. The fund has had no new lending during February, however, three lifts have been carried out on already granted credits corresponding to approximately SEK 18 million.
During February, the fund received the payment, as expected, from Indiska Magasinet AB's bankruptcy estate of SEK 20 million. The process of collecting the remaining claim is ongoing.
The fund is still closed for deposits and withdrawals due to large redemptions during November and December as previously communicated. The fund does not expect to pay partial redemptions in March, if that changes the information will be updated on Finserve Nordics AB's website under questions and answers. The fund's hope and expectation is still that redemptions will be handled during April, but the fund also sees difficulties with refinancing and sales in the market, which may complicate the process of collecting repayments. The fund will update applicable redemptions if new information arises during the month.
NAV influencing factors for February are above all the fund's listed shareholdings, which have increased at the same time as the reserves increased on two engagements where the risk has increased. The fund has updated the credit rating of several counterparties and will continue to evaluate valuations and the development of the companies during Q1 and Q2. The fund continues to see indications that the recovery, reduced inflation and falling interest rates, will take longer than previously expected and that the market situation continues to put pressure on the companies. Reserves and borrowers are evaluated monthly to act and adjust the value if the risks rise or changes in the market affect sectors or borrowers.
The market and the economy
The stock markets have consistently risen at the beginning of 2023, which has largely been attributed to the expectation that the economy will continue to be strong with a soft landing and that inflation will fall during the spring and thus reduce the risk of further increases in interest rates. GDP declined by a surprising -0.9 in the last quarter of 2022 in Sweden, which deviates from the rest of Europe's GDP figures. The risk also increases because the first quarter's GDP figure will be negative now that private consumption and the housing market are falling a lot.
The risk has further increased for more increases after inflation figures for February came in from France (+0.9%) and Spain (+1.0%). The unexpectedly high inflation puts further pressure on the ECB to raise interest rates in Europe earlier and more strongly than the market expected, which further increases the pressure also on the Riksbank to act more forcefully. The Riksbank has emphasized that the exchange rate is very important in order to bring down inflation, as a stronger krona lowers imported inflation. In order to strengthen the krona, an increased demand for krona is required, which is normally achieved by keeping the interest rate at a higher level than the rest of the world. If confidence in the Swedish economy deteriorates, this means that the interest rate differential should increase further so that the krona can be strengthened, which supports the thesis of more interest rate increases over a longer period. There are many indications of an interest rate increase of 0.5 % in April and at least 0.25 % in June.
All in all, there is a risk that regardless of the Riksbank's actions, it is likely that the economic downturn will continue while inflation remains at high levels with continued interest rate increases as a consequence. The fund sees that the market situation puts pressure on the companies and the economy in general, which can increase the risk of more bankruptcies over time
IFRS 9
The fund has increased the provisions during February mainly as a result of two counterparties that did not develop as strongly as expected. The companies will be monitored continuously during Q1-Q2.