Below is a summary of the business news of relevance in Iceland the week beginning on 8 May 2023. The summary, which is based on publicly available information only, is prepared by the BBA//Fjeldco team for the benefit of clients and contacts of the firm and is subject to the disclaimer noted below.
Wednesday, 17 May 2023
40 heads of state in Reykjavik for the summit of the Council of Europe
Interest rates expected to rise to 8.5%
Remarkable resilience and favourable growth prospects accompanied by risk says IMF
S&P revise the rating outlook for Iceland from stable to positive
Scandinavian real estate company Heimstaden retreating from Iceland
Shares in Marel continue to drop
Islandsbanki sells bonds worth 9 billion ISK – 400 points yield on non-indexed bonds
City of Reykjavik issues bonds worth 3.2 billion ISK
Pension funds claim that the Treasury is jeopardizing Iceland´s financial credibility
Recent changes at the helm of Eyrir Invest staved off a revolt from shareholders
Revenues from a key subscription solution of software house Annata increase 40%
Profits of Kvika bank in line with forecast at 1.4 billion ISK
Air Atlanta profited 2.9 billion ISK – dividend payments 1.4 billion ISK
Market analysts call Icelandair an attractive dividend payment company
Long-term issuer rating of Arion Bank revises the outlook from stable to negative.
Skyr producer Icelandic Provisions raise 18 million USD to strengthen the brand and product development
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40 heads of state in Reykjavik for the summit of the Council of Europe
The fourth summit of the Council of Europe takes place in Reykjavík this week and will be hosted by Prime Minister Katrin Jakobsdottir and Foreign Minister Thordis Kolbrun Reykfjord Gylfadottir. On the agenda is the establishment of a Register to record the damage caused by Russia’s aggression against the Ukraine and to reaffirm the importance of the core values of the Council of Europe, according to an official statement The summit, which will take place on May 16-17, is only the fourth to be held in the 74 years that the council has been active Over 40 heads of states are expected to attend and among those who have confirmed their attendance are Chancellor of Germany Olaf Scholz, UK Prime Minister Rishi Sunak, and Emmanuel Macron, President of France
Interest rates expected to rise to 8.5%
Most market participants are expecting a 1-8.5% rise in interest rates next week when the CBI will review the economic outlook, according to a survey conducted last week by weekly business gazette Vidskiptabladid. Currently inflation stands at 9.9%. The majority of those participating in the survey said they expect that inflation will be between 6% – 9% by the end of this year and below 4% before the end of next year or in 2025
Resilience and favourable growth prospects accompanied by risk states IMF
Last week the IMF published its Staff Concluding Statement following its series of meetings with the Icelandic government and other stakeholders over the past two weeks, which were part of the fund’s annual consultation on developments and prospects for the Icelandic economy According to the statement, Iceland has shown remarkable resilience despite multiple shocks since 2019. The growth outlook is broadly favourable though accompanied by imbalances and subject to significant risks. These risks include more persistent inflation, tensions around the upcoming wage negotiations, and tighter global financial conditions. With the economy overheating and inflation well above target, macroeconomic policies need to be tightened, while protecting the most vulnerable. Structural reforms should facilitate diversification, according to the statement, and improve the sustainability and productivity of traditional export industries, which includes tourism
S&P revise the rating outlook for Iceland from stable to positive
S&P Global Ratings have revised their rating outlook for Iceland from stable to positive as well as affirming Iceland ‘s sovereign ratings at A/A-1 According to a statement from S&P, strong ongoing economic recovery from the pandemic fallout, alongside continued fiscal consolidation over the next few years should improve Iceland’s public finances beyond S&P ‘s previous expectations S&P expects high domestic demand and the ongoing recovery of tourism to result in real GDP growth of 3.3% this year and an average of 2.4% in 2024-2026. Iceland has effectively managed external pressures and the country's extensive energy independence has shielded the country from the
fallout of the Russia-Ukraine conflict, according to the statement from the agency The positive outlook reflects S&P‘s view that Iceland's fiscal outlook and its ability to withstand external shocks will continue to improve S&P could raise the ratings if Iceland's public finances improved more than anticipated, either via narrower deficits and lower net public debt, or a decrease in the government's contingent liabilities
Scandinavian real estate company Heimstaden retreating from Iceland
Heimstaden, the Scandinavian real estate company that owns and rents 1700 apartments in Iceland worth 70 billion ISK, has decided to scale down its operations in Iceland following a breakdown of discussions with some Icelandic pension funds regarding a 50% investment in the company, according to a report in daily newspaper Morgunbladid. Heimstaden operates 160 thousand rental apartments in 10 other European countries where it acts as a principal shareholder in cooperation with institutional investors that usually hold around 60% of all shares in the company Iceland is the only country where it has no equity partners “Our business model demands economy of scale, and our policy is to work long term with institutional investor” says Gauti Reynisson, managing director of Heimstaden
Shares in Marel continue to drop
Shares in food processing solution provider Marel have continued to drop since their Q1 results were made public on 3 May last and the share price dropped 17 2% in the days following the publication, according to report in weekly business gazette Vidskiptabladid. Last week´s trading started at 494 ISK per share and ended on Friday at 445 ISK per share – a further drop of 10%.
Islandsbanki sells bonds worth 9 billion ISK – 400 pt yield on non-indexed bonds
Last Friday Islandsbanki concluded an offering of three series of covered bonds, according to a statement from the bank The index linked series ISB CBI 29 was sold for an amount of 8,020 million ISK at a yield of 2 60% The non-index linked series ISB CBF 27 was sold for an amount of 620 million ISK at a yield of 400 points on top of one-month REIBOR Total offers received amounted to 920 million ISK with a yield ranging from 400 to 450 points on top of REIBOR The non-index linked series ISB CB 27 was sold for an amount of 300 million ISK at a yield of 9 06% Total offers received amounted to 1 940 million ISK with a yield ranging from 9 05% to 9 22%
City of Reykjavik issues bonds worth 3.2 billion ISK
Last week the City of Reykjavik sold indexed bonds in two series worth 3.2 billion ISK, according to a statement from the City Council The total demand was 4 6 billion ISK The series RVK 32 1 was sold for 3 2 billion ISK at a yield of 3 61% and RVKG 48 was sold for 1 9 billion ISK at a yield of 3 5% The city had planned to issue bonds in six rounds in 2023 for 21 billion ISK in total The city has postponed the issuing twice this year and so far has sold bonds worth 7 2 billion ISK and drawn on a loan from Islandsbanki for 3 billion ISK in total
Pension funds claim the Treasury is jeopardizing Iceland´s financial credibility
The Minister of Finance appears to be determined in avoiding payments of 450 billion ISK due to the foreseeable collapse of the State-owned IL housing fund, as the Ministry of Finance has published its intention to present a legislative proposal that will force creditors to accept the Treasury´s terms, according to a report on business website Innherji. The fact is that the fund can pay the principal and interest on its obligations until 2034, and that no later than that year the Treasury’s guarantee will be tested The equity position at that point is projected to be negative by approximately 260 billion ISK, or a present value of 170 billion ISK In continuing to operate the fund throughout its debt maturity horizon, the Treasury would need to inject approximately 450 billion ISK, or 200 billion ISK at present value, into the fund The terms that the Treasury is pushing for is to liquidate the fund at the current juncture, sell its assets and use the offset to repay debts and inject funds to pay the negative balance of 47 billion ISK The creditors, which are mainly Icelandic pension funds, have strongly protested and claim that the Treasury is avoiding honouring its obligations and that the Act is expropriation and a breach of constitutional rights. They say that the intention of the Finance Minister will damage the financial reputation of the Icelandic State and jeopardize the credibility of the Icelandic financial markets.
Recent changes at the helm of Eyrir Invest staved off a revolt from shareholders
Recent changes on the board of Eyrir Invest, one of Iceland´s largest private investment firms and the principal investor in Marel hf , the country´s largest listed company, is a result of a backroom battle led by minority shareholders according to a report on business website Innherji The founder of Eyrir Invest, Thordur Magnusson (who along with his son Arni Oddur Thordarson, CEO of Marel, hold 39% of shares in Eyrir Invest) has stepped down as chairman after 23 years and has been replaced by Fridrik Johannsson, a well-known executive and investor with over forty years’ experience in finance. According to the Innherji report, these changes were forced by a group of investors led by Sigurdur Vidarsson, deputy CEO of Kvika bank, and Finnur Reyr Stefansson of the investment firm Saebol, who informed Magnusson in February this year that they had the support of 56% of the shareholders and could claim majority of the board of directors at this year's AGM. According to Innherji’s sources, the reason for the shareholders’ upset is the way Magnusson and his son handled the financial difficulties the company ran into last year when a 40% drop in market value of Marel resulted in near-margin-calls on 280 million EUR loans These difficulties were resolved by a new convertible loan of 175 million EUR provided by the US hedge funds JNE partners and Baupost In the view of the minority shareholders, this solution was designed to preserve the holding of Magnusson and his son in the company, as other investors were not offered the opportunity to participate in the funding or being a part of an agreeable financial solution The AGM of Eyrir Invest was held on Wednesday last week where Johannsson replaced Magnusson as chairman of the company.
Revenues from key subscription solution of software house Annata increase 40%
Software house Annata made 1 5 billion ISK in profit last year, or 55% more than in
2021 according to daily newspaper Morgunbladid The turnover was 5 9 billion ISK, up one billion ISK from the year before The subscription revenues from the company ´ s key solution was up 40% The company develops solutions for the Microsoft Azure cloud solution for motor vehicles and according to Magnus Norddahl, CEO of the company, Annata is one of 1% top associates of the global software giant and number one in the automotive industry Annata holds long-term agreements with car producers such as Toyota, Volvo, and Hitachi The company employs 250 people in 13 countries and enterprise fund VEX 1 owns 50% of the shares According to Norddahl, there is an interest in attracting professional investors to the company and to list it on the Icelandic stock exchange further down the road.
Profits of Kvika bank in line with forecast at 1.4 billion ISK
Kvika bank´s pre-tax profits amounted to 1 4 billion ISK in Q1 2023, which is in line with forecasts despite net investment income being considerably under expectations, according to a statement from the bank Return on tangible equity before taxes (RoTE) was 13 1% in the period Net interest income amounted to 2 2 billion ISK, increasing by 44% compared to the same period the year before, mainly due to loan book growth and rising interest rates, which increase the group’s interest income from fixed income securities Operating expenses amount to 3 8 billion ISK compared to 3 1 billion ISK in Q1 2022 The increase is mainly attributable to inflationary effects and increased labour cost which is partly due to an increase in full-time employees at the group, which has invested in the development of infrastructure to accommodate future growth. Kvika bank´s total equity amounted to 80 billion ISK at the end of the period, compared to 81 billion ISK at the end of 2022 because of a dividend payment decision.
Air Atlanta profited 2.9 billion ISK – dividend payments 1.4 billion ISK
The Icelandic airline Air Atlanta profited 2.9 billion ISK in 2022 compared to 3.1 billion ISK in 2021, according to a report in weekly business gazette Vidskiptabladid The revenues were 33 billion ISK, or up 14% from the year before The board of directors has proposed a payment of 1 4 billion ISK in dividend to shareholders
Market analysts call Icelandair an attractive dividend payment company
Market analyst Jakobsson Capital values Icelandair at 3.07 ISK per share or 60% above current share price, according to its public review. Jakobsson argues that the cash flow has never been stronger than in Q1 2022 and that operational plans show increased revenues and profit ratio. The market analyst’s assessment is that the airline has become an attractive dividend payment company.
Long-term issuer rating of Arion Bank revises outlook from stable to negative
S&P Global Ratings has affirmed Arion Bank’s long-term issuer rating at BBB but has revised the outlook from stable to negative, according to a statement from the agency The short-term issuer rating remains A-2 S&P´s assessment of the Icelandic economy
from July 2022, which was confirmed in March, concluded that the economic risk had increased, not least due to rising property prices and interest rates The amended assessment of the Icelandic economy means that the agency believes that Arion Bank needs to strengthen its capital ratio to maintain its “very strong” capital position The requirements set by S&P are considerably higher than the total capital requirement set by the regulatory authorities and the revised the outlook from stable to negative is because Arion Bank falls below the company’s threshold S&P expects Arion Bank’s earnings capacity to remain strong, which will allow the bank to strengthen its capital base over the next 12-24 months.
Skyr producer Icelandic Provisions raise 18 million USD to strengthen the brand and product development
US skyr producer Icelandic Provisions recently raised 18 million USD in equity according to a statement from Kvika bank, which managed the funding in co-operation with Hamrar Capital Partners Icelandic enterprise fund VEX I was a lead investor along with a group of Icelandic and international investors According to Mark Alexander, CEO of Icelandic Provisions, the proceeds will be used to strengthen the brand and the company ´ s ambitious development plan Icelandic Provisions has a partnership with the holders of the original recipe for skyr, MS Iceland Dairy, and, according to the company ´ s website, Icelandic Provisions is the only authentic Icelandic skyr brand in the United States that uses heirloom Icelandic skyr cultures and a recipe that dates back thousands of years
