Plunging Iceland Shares No Barrier to New IPOs, Nasdaq Says

Plunging equity prices in Iceland are unlikely to curb interest in tapping the stock market for funds, according to the head of the nation’s exchange, even as capital controls imposed in 2008 risk creating an asset bubble.

The decline in prices since the start of the year is “in some sense” a reaction to weaker-than-expected earnings, Pall Hardarson, head of the 500 billion-krona ($4.4 billion) Nasdaq OMX Iceland stock exchange, said in Reykjavik yesterday. While the results were “good in many cases, they may not have quite reached the levels that some investors expected.”

Iceland, whose 2008 banking default on $85 billion pushed the economy into a recession that lasted through the first half of 2010, has imposed controls intended to prevent a flight of capital. The restrictions, which prevent pension funds from investing abroad, “raises the possibility of an asset bubble in the local market,” Gunnar Baldvinsson, chairman of the Icelandic Pension Funds’ Association, said last week.

While the nation’s key stocks gauge, the OMX Iceland 6 Index, has doubled since 2009, it has fallen more than 10 percent since the start of the year. Of the six companies in the index, five have seen their shares lose value, Marel hf, which produces equipment for the food processing industry, falling 25 percent and Vatryggingafelag Islands hf, an insurer, declining 13 percent. Only Hagar hf, a retailer, has seen its shares increase, gaining 9 percent.

Equity Adjustment

Regardless, the environment for companies seeking to raise capital through the sale of shares on the exchange is still “quite favorable,” Hardarson said.

“This is short-term adjustment as so frequently happens,” he said. “I don’t think the market is more difficult than it was a year ago. If you look at equity prices they are higher than they were -- considerably higher than they were a year ago.”

The Icelandic bourse has seen seven listings since 2011, with two more companies scheduled to sell shares later this year. Insurer Sjova hf, which completed its initial public offering on March 31, raised 4.7 billion kronur. The company, an insurer which offers cover ranging from property to health and vehicles, received bids for 35.7 billion kronur, it said.

HB Grandi hf, Iceland’s largest fishing company, will on April 7 start marketing its IPO in an effort to sell as much as 32 percent of the group.

Capital Controls

Hardarson wants the market value of Iceland’s stock exchange to double during the next three to five years, with the number of listed companies rising from 13 now to more than 40, he said. In 2003, Iceland had as many as 48 companies listed while in 1999, that number was as high as 75.

“If you look at the exchange here in the context of relative size in relation to the size of the economy, I think we still have quite some catching up to do,” said Hardarson. “Just comparing us to our Nordic neighbors, I think a reasonable target is to double the market cap here.”

Finance Minister Bjarni Benediktsson said last week that Iceland is moving closer to exiting controls and is planning a “number of actions” including potentially forcing the winding-up committees of the failed banks into bankruptcy.

The restrictions are blocking about $7.2 billion from being sold, including holdings at the estates of Kaupthing Bank hf, Glitnir Bank hf and Landsbanki Islands hf, the failed banks that defaulted on a combined $85 billion in 2008.

Hampering Growth

The capital controls are hampering the growth of the stock market “especially regarding some of our innovation companies,” Nasdaq’s Hardarson said. “These are companies that are seeking to expand abroad, in many cases, and the capital controls limit in that sense the value of having a base here in Iceland and expanding here from Iceland. The equity market reflects this. We don’t see companies that otherwise we might see listing on an exchange.”

Hagar gained 0.6 percent to 42 kronur, the highest intraday level in more than a month, as of midday in Reykjavik. Vatryggingafelag fell 1 percent to 9.5 kronur and Icelandair Group hf declined 0.6 percent to 17.5 kronur. The OMX Iceland 6 Index eased 0.1 percent to 1,157.53, extending its drop since the start of March to 4.2 percent.

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