The three Icelandic borrowers in the Euro-MTN market are battling hard for investor attention. Each issuer relies heavily on Euro-MTNs for its funds but few big investors are looking seriously at Icelandic paper. Some blame the Icelandic central bank, saying it did a poor job of advertising Iceland to the investment community. Others think it is a natural consequence of being a small country. But Icelandic issuers have achieved surprisingly good levels of issuance. FBA won MTNWeek's best new borrower award last year and has now merged with Islandsbanki to become the biggest issuer in Iceland. Landsvirkjun is rated Aa3 and is guaranteed by the state. It has raised $443.21 million off 16 trades. And Landsbanki Island (Landsbanki) has proved its critics wrong after successfully raising $241.43 million in the four months since signing, according to MTNWare. Also, Bunadarbanki is expected to be signing soon, depending on its rumoured merger with Landsbanki. But Michael Bransford, MTN desk at Merrill Lynch, thinks more issuers may add to the problem. He says: "There may be a crowding-out effect with new Icelandic borrowers since investors have limited lines to the Iceland region." And William Symington, senior funding manager at Islandsbanki-FBA, thinks it is up to the established borrowers to sell their debt further. He says: "The main issue facing Icelandic borrowers is that there are comparatively few institutional investors who have established credit lines with Iceland. The country limits for Icelandic paper need to be increased, and in some cases set up for the first time." According to Stefan Petursson, treasurer at Landsvirkjun, the solution will involve a lot of hard work. He says: "We need to increase investor education about our specific programmes, and also advertise Iceland's credit story. Iceland's ratings have improved steadily over the last four or five years and our economy has become an example to follow." Landsvirkjun is Iceland's national power company. It was the first Icelandic borrower to set up a Euro-MTN programme when it signed a $1 billion facility in May 1998. It has kept to the seven- to 10-year sector, and did its first trade in Czech koruna in July. It has also issued trades in Norwegian krone and Deutschmark. Petursson says: "Because the swap market in Icelandic krona is quite small we tend to keep our own portfolio of currencies. Germany and Japan have been our most important markets so far, but we would like to see more flow out of southern Europe." Landsvirkjun's Aa3 rating stands it apart from Landsbanki, rated A3, and Islandsbanki-FBA, rated A2. And credit ratings are a vital factor in such a small sector. Islandsbanki-FBA's euro2 billion ($1.8 billion) programme was signed in July this year. It replaced FBA's euro1.5 billion and Islandsbanki's euro750 million facilities after the two banks merged, and subsequently had its rating raised from A3 to A2. The merged bank is now in a strong position to bolster its issuing volumes. Symington, at Islandsbanki-FBA, says: "The central bank is currently repaying its debt and consequently is not issuing much at the moment. As a result Islandsbanki-FBA is now, by default, the most active borrower in Iceland." He adds: "We expect to make one further public transaction this year. And we are going to target more specific geographical areas outside of Germany and Japan." Landsbanki can also claim to be doing better than many expected. It signed its $600 million Euro-MTN programme in April this year and the choice of Bank of America as arranger raised some eyebrows. The dealer panel, including the likes of Banca d'Intermediazione Mobiliare and Bankgesellschaft Berlin, also came as a surprise. Gunnar Andersen, managing director, international banking and treasury at Landsbanki, admits that the dealer panel did not contain the recognized MTN names. But he says: "On a US and European scale we are a small bank, but we have built up good relationships with certain dealers over the years. We chose our dealers on the level of attention they would give us and on their past performances." Andersen wants to increase issuance, and says: "This year the euro has met a large part of our funding needs, but in the future we will probably be looking to sell dollar notes. We are also getting involved in Italy, Austria and Spain and would like to sell more paper into southern Europe and France." As southern Europe is a good buyer of wider spreads, dealers think this is a good move for the lower-rated issuers. Simon White, principal, London syndicate desk at Bank of America, says: "Southern Europe primarily offers diversification. These issuers are already well-known in northern Europe and there is a limit to the amount of credit the investors there can buy." And expansion is key. Almost 100% of Landsvirkjun's funds have come off the MTN programme and 75% of Islandsbanki-FBA's funds have come the same way. Landsbanki expects to raise another $300 million off its programme this year which will take it very close to its ceiling. White is confident that there will be enough interest to satisfy everyone. He says: "The continuing re-emergence of Japanese institutional investors in the global market place means there will regularly be investors looking for paper in the short-end."
October 06, 2000
