Iceland Closer to Debt Sale as Credit Ratings Get Boost

Iceland moved closer to its next international bond sale after the nation’s credit ratings improved.

Fitch yesterday raised the island to BBB from BBB-, with a stable outlook. That followed a decision last week at Moody’s Investors Service to lift the outlook on Iceland’s Baa3 rating to stable from negative. Both moves followed Iceland’s Jan. 28 court victory over the U.K. and the Netherlands, ending a four-year depositor claims dispute that had threatened to cost the island as much as $2.6 billion in damages.

Iceland has tapped international debt markets twice since its 2008 financial meltdown, which saw its biggest banks default on $85 billion. Since then, the island has surfaced from an international bailout stronger than many of the nations inside the euro area. Iceland, which is now outgrowing the 17-nation currency bloc, is looking for foreign investments to help speed its recovery.

“We’re always on the lookout for the best possible financing for Iceland,” Finance Minister Katrin Juliusdottir said in an interview late yesterday. Now that the country’s ratings have improved, “we hope that we can obtain even better financing,” she said.

Dollar Bonds

The island sold a $1 billion dollar 10-year bond in May last year, and a $1 billion five-year note in June a year earlier.

The yield on Iceland’s 5.875 percent bond due May 2022 eased three basis points to 4.16 percent as of 11:26 a.m. in Reykjavik, according to composite Bloomberg bond trader prices. The yield on its 4.875 percent note due June 2016 rose two basis points to 2.83 percent.

The biggest hurdle on the path to restoring investor confidence remains the removal of Iceland’s capital controls, which have been in place since 2008 to prevent a krona sell-off. The nation’s improved ratings will help unwind the restrictions, Juliusdottir said.

The process for scaling back the capital controls “is a lot clearer now” and Iceland can start executing its plan in the next 12 months, she said. “We can now begin drawing up different scenarios on how we intend to control the outflows.”

Bank Creditors

The government is now trying to assess how the krona will weather capital outflows as creditors in Kaupthing Bank hf, Glitnir Bank hf and Landsbanki Islands hf start to receive their shares of the proceeds of the failed banks’ assets, following composition agreements.

“We have a clearer picture on the failed banks’ estates,” said Juliusdottir. That will help Iceland “make sure that no blows will be dealt to Icelandic households or corporations,” she said.

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