UPDATE 1-Iceland to sell first euro bond since 2006

Mon Jul 7, 2014 7:14am EDT

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By Sarka Halas

LONDON, July 7 (IFR) - The Republic of Iceland is planning its first euro-denominated bond sale since 2006, a shift away from the US dollar funding it relied on after its banking sector defaulted.

Iceland has only tapped dollars since the collapse of its banking sector in 2008. The new euro deal will have a maturity of six years and will be marketed via leads Barclays, Citigroup, Deutsche Bank and JP Morgan.

"The euro bond will allow Iceland to diversify away from its traditional US dollar investor base," said a syndicate official working on the deal, adding that the trade will appeal to UK-based asset managers and others who are short of euro supply.

The odd six-year maturity will be used to service a large redemption in the form of Nordic loans that the sovereign borrowed at the height of the crisis.

Iceland was last in the public market with a heavily-oversubscribed 10-year dollar bond in May 2012. The previous year, it returned to the capital markets with a five-year issue in the currency.

The path to market, however, has not always been smooth sailing for Icelandic names, despite the Nordic island being heralded as a European recovery story.

In May, Arion Banki put a euro issue on hold after investor feedback on pricing did not match its expectations, a setback for what was expected to be the last stage in the European banking sector recovery.

The failure was a blow for the bank and for the country, as market participants hoped the transaction could have opened the door for other Icelandic lenders and the sovereign.

An investor call for the new euro issue will be held today at 1pm, while initial price thoughts could be announced as early as this afternoon, depending on investor feedback.

Iceland is rated Baa3/BBB-/BBB (all stable). (Reporting by Sarka Halas, editing by Julian Baker)

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