Iceland makes successful return to bond markets

ICELAND RETURNED to international debt markets for the first time since its banking meltdown more than two years ago as investors offered to buy twice the amount the government offered in dollar-denominated bonds.

“This transaction is an important milestone for Iceland,” finance minister Steingrimur J Sigfusson said in a statement on the government’s website yesterday. “Iceland has set a benchmark in the market which should over time facilitate capital market access for other Icelandic issuers.”

Iceland, which averted a sovereign default by refusing to bail out bondholders when its banks failed in October 2008, will enjoy economic growth of 2.2 per cent this year and 2.9 per cent in 2012 as its budget deficit narrows to 1.4 per cent of gross domestic product, according to the Organisation for Economic Co-operation and Development.

The island’s approach to resurrecting itself from financial ruin has won the praise of Nobel laureate Paul Krugman, who says Iceland is now better off than euro member Ireland.

“Iceland doesn’t have a lot of private debt anymore and has done a lot on the fiscal side,” said Lars Christensen, chief analyst at Danske Bank in Copenhagen, in a phone interview yesterday. “The Icelandic fundamentals on the debt side now are actually quite strong. That’s a fact.”

The $1 billion bond sale was twice oversubscribed, according to the ministry. The debt is due in 2016 and carries a fixed rate 4.993 per cent semi-annual yield. The sale followed a six-day roadshow in Europe and the US.

Barclays Capital, Citigroup and UBS managed the sale.

“The issue comes at a time where global market sentiment is not particularly good due to the European debt crisis,” said Mr Christensen, who in early 2006 predicted Iceland would suffer a recession.

“If you look at the pricing of Iceland’s bonds and compare it to other European countries with similar debt levels as Iceland, to me the yield on the bonds looks pretty attractive.”

Iceland has about €454 million in eurobonds due this year and next, the central bank said last month. That compares with foreign reserves of 759 billion krona (€4.61 billion) in April.

Credit default swaps on Iceland’s debt eased more than 20 per cent since the end of April through June 7th, as investors bet the island faces a lower risk of default than euro members Spain, Portugal, Greece and Ireland. – (Bloomberg)