Iceland’s Arion Bank says it is preparing to turn to international credit markets with a bond issue within the next 12 months. Arion has never issued bonds before and is the state-created successor to Kaupþing, which went bankrupt in 2008.
In an extensive article on Iceland’s progress, the international financial data and media company Bloomberg quotes Arion CEO Höskuldur H. Ólafsson saying that the outlook is positive for the bank to successfully pull off the Eurobond issue.
Iceland is now recovering from letting its banks collapse with USD 25 billion debts in 2008, while the Eurozone is getting into worse trouble; and Iceland’s CDS (Credit Default Swap) rate now shows it costs less to insure Icelandic debt than Eurozone debt, Bloomberg reports.
Höskuldur believes this information is encouraging the three new domestic banks carved out of the remains of the collapsed ones to investigate their international potential. A lot of things in Iceland are going well, compared to the rest of Europe, he says.
By way of illustration it is pointed out that Arion Bank has a capital adequacy ratio of 21.4 percent, compared to the FME financial regulatory authority’s 16 percent target and a legal minimum of 8 percent.
Arion (formerly Kaupþing) is 13 percent in the hands of the Icelandic state and 87 percent owned by Kaupþing creditors and the bank says it is talking to international ratings agencies to get a credit grade.
“We have not fully concluded how much debt we intend to issue in foreign currencies in the near term,” Höskuldur told Bloomberg. “It’s important that we take small steps to begin with.”
The likely Arion bond issue is triggered by the Icelandic government’s USD 1 billion bond issue this June which was twice over-subscribed by investors — the country’s first foray into global markets since the crash of 2008. “It was paramount that the Icelandic Republic led the way and was successful,” Höskuldur said.