Iceland received almost three times the bids for its 750 million-euro ($1 billion) bond sale as the nation seeks to boost foreign-exchange reserves amid preparations to phase out capital controls.
The six-year Eurobond bears a fixed interest of 2.5 percent, with a yield of 2.56 percent, the Finance Ministry said in an e-mailed statement. Bids exceeded 2 billion euros, it said.
The sale was arranged by Barclays Plc (BARC), Citigroup Inc. (C), Deutsche Bank AG and JPMorgan Chase & Co. (JPM) The initial price talk on the debt was about 190 basis points over the mid-swap rate, according to a person familiar with the matter who asked not be identified.
“The Treasury is demonstrating its capacity to refinance debt on the European capital market, the market which is most significant for sovereign funding,” Finance Minister Bjarni Benediktsson said in the statement. “This issue paves the way for improved access for domestic parties seeking foreign funding.”
Since its financial collapse in 2008, Iceland has sold two separate $1 billion dollar-denominated bonds in 2011 and 2012. It exited a 33-month International Monetary Fund program in August 2011 and has relied on capital controls since the 2008 failure of its three largest banks caused the krona to plunge. The currency has climbed about 7 percent against the euro since a low last year as the central bank intervened.
Iceland still owes $1.8 billion to the IMF, Nordic governments and Poland, after repaying the rest of the $4.6 billion it borrowed following the 2008 collapse. The IMF loans are due by 2016 and the Nordic loans from 2019 to 2021.
Today’s debt sale will be used to “prepay outstanding balances” on the Nordic loans, Iceland’s Finance Ministry said.
Iceland’s $16 billion economy has recovered faster from its financial collapse than its central bank predicted. Output is set to grow 2.8 percent in 2014 and 3.2 percent in 2015, according to the European Commission.
The government is recruiting advisers to help start a dialogue with the creditors in the failed banks, which defaulted on $85 billion of debt and are sitting on trapped assets of about $7.2 billion. Benediktsson said in June that a solution will probably be imposed this year if the creditors, many of them hedge funds, fail to come with a viable plan to wind up the banks.
To contact the editors responsible for this story: Jonas Bergman at firstname.lastname@example.org Ben Holland