* Iceland, Latvia sell debt in return to capital markets
* Iceland finance minister says deal a "milestone"
* Iceland sells $1 bln worth of 5-year debt
* Latvia sells $500 mln worth of 10-year debt
By Daniel Bases
NEW YORK, June 9 Iceland and Latvia returned to
international bond markets on Thursday for the first time since
they plunged into crisis during the global liquidity crunch, a
sign two small countries are progressing toward recovery.
Iceland sold its first Eurobond for since 2006 and the
first since its banking system collapsed in late 2008,
ultimately forcing it to take a bailout led by the
International Monetary Fund.
Steingrimur Sigfusson, Iceland's finance minister, said the
deal was "an important milestone for Iceland. We are encouraged
to see the breadth and depth of investor interest," he said in
a statement issued after the deal.
Iceland offered a $1 billion five-year debt issue, sold at
a discount of 99.484, with a yield of 4.993 percent and a
coupon of 4.875 percent. That put it 320 basis points over
mid-swaps, the measure of interest between floating and fixed
rates. Early price guidance had it higher at 325 basis points.
According the Finance Ministry, the order book was two
times oversubscribed, with the majority of the bonds purchased
by U.S. and European investors.
In Latvia's case, the Baltic state sold $500 million worth
of 10-year debt at a discounted price of 98.1640, bringing a
yield of 5.491 percent and a coupon of 5.25 percent. The deal
was 237.5 basis points over mid-swaps versus early guidance in
the 250 basis points area.
It was Latvia's first international issue since early 2008,
just before the financial crisis struck with full force,
compelling it to take an IMF-led bailout as well.
Both countries are approaching the end of their bailouts,
but had to go through a series of austerity programs to reduce
their budget deficits.
Returning to international capital markets is a key
milestone in the two countries' recovery from crisis and shows
a return of investor confidence.
Iceland still has controls on the flow of foreign currency,
but aims gradually to reduce them.
"I must say this is a positive for Iceland. It is something
a couple of years ago no one dared dream of so soon after the
collapse, while still being under capital controls and still
not having completed the IMF program," said Jon Bentsson,
senior economist at Islandsbanki in Reykjavik.
Bentsson added that the government's new benchmark debt
issuance was crucial for laying the groundwork for other
Icelandic banks and businesses to return to international
"Now with the interest that is evident from investors in
this issue and having raised $1 billion, I guess at reasonable
rates, all things considered, the government won't have a cash
flow problem in the medium-term for external payments," he
Iceland holds the lowest level of investment grade credit
rating from Moody's Investors Service at Baa3 and Standard &
Poor's at BBB-minus. Fitch has it just one notch lower at
BB-plus, junk status.
Latvia's credit rating is investment grade from Moody's at
Baa3 and BBB-minus from Fitch, while Standard & Poor's has it
one notch lower at BB-plus.
Latvia's economic output plunged 18 percent in 2009, the
worst drop in the European Union, but it is now back on the
Latvia's currency is pegged to the euro and the country
wants eventually to adopt the euro, with a target of 2014.
The lead managers for Iceland's debt issue were Barclays,
Citi and UBS.
Latvia's deal was lead-managed by Credit Suisse and Citi.
(Reporting by Daniel Bases, additional reporting by Patrick
Lannin and Mia Shanley in Stockholm; Editing by Dan Grebler)