New Iceland Smelter Funded with Glacier Bonds? Skip to content

New Iceland Smelter Funded with Glacier Bonds?

The executives of Nordurál – Century Aluminum have for the past weeks discussed with the Central Bank the possibility of using the value of so-called “glacier bonds” (i.e., bonds denominated in ISK held by foreign parties) and other assets of foreign parties in Iceland to fund its smelter in Helguvík, south Iceland.

The aluminum smelter in Reydarfjördur, east Iceland, under construction. Photo by Páll Stefánsson.

On Friday, Iceland’s Althingi parliament granted permission to Minister of Industry Össur Skarphédinsson with 38 votes against nine to reach an agreement with Nordurál Helguvík ehf. and Century Aluminum Company on the smelter on behalf of the Icelandic government, Fréttabladid reports.

Ágúst Hafberg, managing director of business development and communications at Nordurál, explained that the purpose of this method of funding is to help free the owners of glacier bonds from the currency restrictions without causing further depreciation to the Icelandic króna.

Prime Minister Jóhanna Sigurdardóttir said at the Central Bank’s annual general meeting on Friday that the bonds in Icelandic króna are a matter of concern since they can jeopardize its stability. It is therefore important that the owners of such bonds are assisted in selling them in an organized and systematic manner, she argued.

Hafberg stated that his company is interested in funding the Helguvík smelter in such a way, but that the matter is in the initial stages.

According to Fréttabladid’s sources, the arrangement would involve Nordurál accepting Icelandic krónas from the owners of the glacial bonds, who are unable to move their money out of the country because of the currency restrictions, and issue bonds in US dollars instead.

Once the Helguvík smelter begins operating and receives revenue in US dollars, the part of the revenue would be used as a down payment for the bonds.

The Central Bank has also discussed this option with other companies, including Landsvirkjun, the national power company, as confirmed by Thorsteinn Hilmarsson, Landsvirkjun’s information officer.

It is unclear how large amounts of money are held by foreign parties in glacier bonds and other assets, but when the currency restrictions were established in November 2008, their worth was estimated between ISK 400 and 500 billion (USD 3.1 billion and 3.9 billion, EUR 2.4 billion and 3.0 billion).

The Helguvík smelter is currently under construction. Ground was broken for it last summer. It is hoped that the project will provide employment for many of the almost 1,900 people who are unemployed in the Sudurnes region.

Click here to read more about the Helguvík smelter and here to read more about the currency restrictions.

Click here to read more about the Central Bank’s annual general meeting.

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