Important step in capital account liberalisation
The Icelandic authorities will not approve the LBI hf. winding-up committee's request for exemptions from the capital controls, submitted with a letter dated 12 June 2014. It is not agreed that the bond issued by Landsbankinn shall be exempt from the controls.
Requests for exemptions relating to priority claims against the LBI hf. estate will be approved; these apply to foreign-denominated liquid funds. The amount exempted totals nearly 400 billion krónur, just under 5% of original claims filed against the failed banks' estates. This amount has been recovered and is held in accounts with LBI hf.
LBI hf. and Landsbankinn hf. have notified the authorities of a new agreement providing for amendments to the terms of the bond issued by Landsbankinn. The same parties had previously reached an agreement on amendments to the bond in May 2014 and so notified the authorities, in addition to submitting requests for broad-based exemptions from the capital controls for payments to creditors of the Landsbankinn estate. The amendments now agreed entail, among other things, a significant reduction in Landsbankinn's refinancing risk.
The aforementioned decision to grant an exemption is limited to payments to priority creditors. With the payments now authorised, the LBI estate's priority creditors will have received payment amounting to approximately 85% of the principal amount of their claims. Priority claims against the Glitnir and Kaupthing estates have already been paid in full. The premise for the authorisation of the above-mentioned payments is that proposals for a comprehensive capital account liberalisation strategy are now complete.
The Icelandic authorities will not grant exemptions to general creditors except in the context of the implementation of that strategy.
The amendments to the terms of the LBI-Landsbankinn bond are the premise for the authorisation of exemptions for priority creditors. The repayment profile of the bond has been extended, reducing repayment risk after 2018. It should be noted that the bond is callable; therefore, Landsbankinn has the option of refinancing it as soon as better terms are available in the capital markets.
The settlement of priority claims marks a major step forward in the winding-up proceedings of the failed banks and will assist the Government in implementing a comprehensive capital account liberalisation strategy.