State Sells 22.5% Stake in Íslandsbanki

Prime Minister Bjarni Benediktsson

The Icelandic government sold a 22.5% stake in Íslandsbanki bank last Tuesday in an offering for professional investors. Opposition MPs have criticised the shares’ low price and the sale’s lack of transparency. Finance Minister Bjarni Benediktsson says the aim was to acquire long-term investors and that Icelandic pension funds were the main purchasers.

Íslandsbanki was fully owned by the Icelandic state until last year, when it sold a 35% stake in the bank, something that had been on the government agenda for years. While last year’s sale was a public offering, this week’s was only open to professional investors, who received an invitation to buy shares, which were then sold at a 5% discount from their market value. The sale was successful, reducing the government’s stake in the bank from 65% to 42.5%.

Investors received insider information

According to information from Icelandic State Financial Investments (ISFI), demand for the shares was high. Both Icelandic and foreign investors showed interest in the sale, though the identity of the investors has not been made public. Investors were required to sign a confidentiality agreement, meaning they were temporarily granted access to inside information. Investors had already made a profit yesterday, when shares in the bank rose by ISK 4-5 billion [$31.1-38.9 million; €28.3-35.4 million] following the sale.

MPs criticised the sale’s lack of transparency in Parliament yesterday, as well as the discount given to investors. Financial expert Ásgeir Brynjar Torfason told RÚV it is unclear how the investors were selected, and that is a question that ISFI and the Ministry of Finance need to answer. He also called on authorities to answer why such a large discount was given, despite high demand for the shares.

Finance Minister responds to criticism

In an interview with RÚV, Minister of Finance Bjarni Benediktsson called the discount on the shares a small one, saying that Icelandic pension funds were the main purchasers in the offering. “We did not go the route of looking for the pension fund or the investor who wanted to offer the highest price and let them have as much as they wanted. We took another route. We wanted to go toward more decentralised ownership and we wanted to consider what the market conditions would be like when the offering ended. That there would be a [financially] healthy group behind the bank.”

Around 2,000 Icelandic Pensioners Live Abroad

Tenerife elderly senior Spain

New data from Statistics Iceland shows that there were around 51,000 Icelandic pensioners as of December 2020—an increase of 3.9% from what this number was a year ago. Just under 2,000 Icelandic pensioners live abroad now, which represents 4% of the total number of pensioners. The number of pensioners living abroad has increased by 45% since 2017.

Around 24,000 of the recorded pensioners are men and 27,000 are women. About a quarter of the individuals on pensions were under 70 years of age; almost half were 75 or older.

The number of pensioners on disability has increased by 0.3% between this year and last, almost 20,000 people total. This is a lower relative increase than has been seen in previous years. Close to 12,000 pensioners on disability are women and around 8,000 are men.

The number of individuals receiving rehabilitation pensions increased by a quarter, just around 3,000 at the end of last year. Rehabilitation pensions differ from disability pensions in that they are temporary.

See the full report, in English, here.

Purchase of Icelandic Telecommunications System is Long-Term Investment, Says French Company

fibreoptic cable infrastructure

French fund management company Ardian, which has signed an agreement to buy Icelandic telecommunications company Míla, says the purchase is a long-term investment. Speaking to RÚV reporters, Ardian’s CEO of Infrastructure Investments Daniel Graf von der Schulenburg stated he expects the company to hold onto Míla for decades. Icelandic politicians have expressed concern that selling the telecommunications company abroad could pose a threat to Iceland’s national security.

All of Iceland’s homes, businesses, and institutions are serviced by Míla’s nationwide telecommunications infrastructure, which includes copper wire, fibreoptic, and microwave systems. The company is therefore the basis of all telecommunications and electronic communications systems throughout the country.

Massive investment expected to impact króna

Ardian’s purchase of Míla is the largest foreign investment in Iceland in the past decade. The influx of foreign currency the purchase entails could cause short-term deviations in the exchange rate of the Icelandic króna, the Central Bank has stated. The sale is, however, expected to lead to an appreciation of the króna.

Míla has been sold to Ardian for ISK 78 billion ($603 million/€520 million). The French company took over the debts of Míla’s previous owner, Síminn ehf., which will make a profit of ISK 46 billion from the sale. Icelandic pension funds are expected to acquire shares in the company amounting to 20%, with a price tag of ISK 10-12 billion. Von der Schulenburg says negotiations with pension funds are going well.

Icelandic government sets conditions

The Icelandic government has set some requirements for Míla’s sale, including that the equipment remains in Icelandic jurisdiction and that authorities are informed of who the real owners of the company are at all times. Opposition MP Þorgerður Katrín Gunnarsdóttir, chairperson of the Reform Party, has criticised these requirements as being too little, too late. VR Union Chairman Ragnar Þór Ingólfsson has harshly criticised the sale, fearing it will lead to price hikes for users. He expressed disappointment that pension funds, who hold a majority in Síminn ehf., did not prevent the sale in the first place.

“You will be seeing us for decades”

Von der Schulenburg described Iceland as an attractive country to invest in due to its wealth, educated population, and bright future of its economy. “We like that stability and good outlook as a place to invest in,” he stated. According to von der Schulenburg, Míla is an exciting investment opportunity because “there’s still opportunities to improve. He stated that Ardian would place emphasis on extending fibreoptic lines to more sparsely populated areas and continue developing the 5G cellular network.

Prices will not rise, according to von der Schulenburg, as Ardian will aim to get more cost-efficient usage out of Míla’s infrastructure. Asked whether Ardian would consider selling the company to Russia or China in the future, von der Schulenburg stated: “No, that is not going to happen. We are a very long-term investor and there’s two reasons for that. One is that almost all of our investors are insurance companies, pension funds, and sovereign wealth funds. The majority of the funds are coming from Europe. And these investors have a very long-term perspective.”

Von der Schulenburg added infrastructure investing is long-term in general as it takes time to get a return on your investment. “Most likely you will be seeing us for decades.”

Up to 35% of State-Owned Íslandsbanki For Sale

Icelandic state-owned bank Íslandsbanki launched its share offering at 9.00am this morning. The bank will sell up to 35% of its share capital in the initiative, which stands until June 15, following which all its shares will be listed on Nasdaq Iceland (the Icelandic stock exchange). Two foreign investment companies and two local pension funds are said to be the cornerstone investors in the initiative. RÚV reported first.

Government Moves to Reduce State Ownership

Of Iceland’s three largest banks, just one (Arion Bank) is privately owned. The other two are in state ownership (Íslandsbanki, currently at 100% and Landsbankinn at 98.2% state ownership). Iceland’s current governing coalition prioritised reducing state ownership of financial institutions in the government agreement made at the beginning of its term. A sale of part of Íslandsbanki was discussed earlier in the term but side-lined during the pandemic as conditions for the sale were not considered favourable. Government officials have argued that the sale could free up funds for investment in essential infrastructure.

Read More: Sale of State-Owned Banks

A notice on Íslandsbanki’s website states that the bank’s estimated market value following the offering is ISK 150 billion ($1.24 billion/€1 billion). The aim is to sell over 636 million shares, the suggested retail price of which is between ISK 71 and 79 per share. The offering will take place both through a public offering of shares to institutional investors and retail investors in Iceland and through a private placement to specific institutional investors in various other jurisdictions.

Four Key Investors

Foreign investment funds have already committed to buying in the bank, according to Íslandsbanki. Funds managed by Capital World Investors have committed to purchasing nearly 77 million shares while RWC Asset Management LLP has committed to purchasing nearly 31 million shares. Icelandic pension funds Gildi-lífeyrissjóður and Lífeyrissjóður verzlunarmanna have also committed to buying more than 46 million shares each. These four parties are said to be the cornerstone investors in the offering.

FSA Iceland Investigates Pension Funds’ Decisionmaking Following Icelandair Stock Offering

The Financial Supervisory Authority of the Central bank of Iceland is investigating the pension funds’ involvement with Icelandair’s stock offering last week, Central Bank Governor Ásgeir Jónsson revealed yesterday. No specific pension funds were mentioned but the last few days have seen disagreement within the board of the Pension Fund of Commerce surfacing over the decision not to participate. The Director of VR (the Store and Office Worker’s Union) declared in an open letter in Fréttablaðið that he had no confidence in the board’s Vice-Chairman after she aired her opinion that she was surprised at the board’s decision.

“We worry that the independence of individual board members wasn’t sufficiently secured; that it wasn’t entirely certain that board members made their decisions based on pension fund member interests instead of the interest of individual companies or corporate disputes. We want to reiterate that that should be the case,” Ásgeir told RÚV.

The Pension Fund of Commerce, formerly the largest shareholder of Icelandair, didn’t participate in the company’s stock offering last week. After the successful stock offering, the country’s pension funds are no longer majority shareholders in Icelandair. The board of the Pension Fund of Commerce’s votes were even, as Chairman of the board Stefán Sveinbjörnsson and Vice-Chairman Guðrún Hafsteinsdóttir were on opposite sides. The board is made up of eight members, four of whom are appointed by the board of VR and four by the employers’ associations. Ragnar Þór, the director of VR, was heavily criticised for his comments last year during controversial wage negotiations for Icelandair’s flight attendants when he suggested that the pension funds connected to the unions should not participate in the airline’s stock offering. He rescinded his comments once the wage dispute was settled.

The Vice-Chairman is one of the four board members appointed by employers associations, and after the board’s decision, she openly aired her disagreement. “I considered [Icelandair’s] forecast to be modest, and it showed moderate optimism. That said, I thought we should maintain our share in the company. To get a good return on investment, you sometimes need to take risks. And I was ready to do so in this particular case,” Guðrún told Rúv.

Guðrún told Fréttablaðið last week that she was surprised at the position the board’s VR representatives had taken, that they did not wish to take part in the stock offering. The director of VR criticised Guðrún in an open letter in Fréttablaðið yesterday over the comments, which he claims are merciless.

“She thinks sinister points of view are the reasons behind the decision not to participate in Icelandair’s stock offering, other than professional. I think this behaviour is unacceptable. I will assume that FSA Iceland will investigate her position and comments,” says Ragnar. He also stated that he has for a long time held the opinion that neither employers nor union representatives should have a hand in the boards of pension funds.

“It should be the pension fund members themselves. The real owners of the funds, who are best suited to make decisions on how the money is distributed and who should control the funds,” says Ragnar.

Does Guðrún believe that the pension fund’s board went against the interest of fund members when they decided not to participate in the stock offering? “Well, let’s not forget that a few thousand Icelandair staff members are pension fund members in Lífeyrissjóður Verzlunarmanna. In this case, everyone was probably looking out for people’s interest even if there were different opinions,” says Guðrún.

Ragnar Þór said that he has no confidence in Guðrún as a board member of the pension fund. “I think Guðrún Hafsteinsdóttir should focus on what she does best, which is to manufacture ice cream,” says Ragnar. Guðrún and her family are the owners of Kjörís, an ice cream factory.

“One does feel it’s unfair that my person is dragged into things in this way, my company and my family,” was Guðrún’s reply.

Icelandic Pension Funds Lose Millions in Investment Downturn

Gamma capital management

Three Icelandic pension funds have lost a combined ISK 610 million ($4.92m/€4.48m) in two Gamma Capital Management funds whose assets have plummeted dramatically, Vísir reports. Gamma’s new directors are now consolidating and investigating payments related to the funds due to suspicion of mismanagement.

Investors in Gamma’s real estate funds Gamma: Novus and Gamma: Anglia received notice last Monday that Novus’ assets had crashed by 99% and Anglia’s by 60%. Novus operated the real estate company Upphaf, which has built hundreds of apartments in the Reykjavík capital area in recent years. Anglia’s investments, on the other hand, were tied to real estate projects in the UK.

Directors make departure

Gamma’s CEO since 2017 Valdimar Ármann left the company four weeks ago, while Novus’s fund manager Ingvi Hrafn Óskarsson also resigned from his position recently. Máni Atlason took over as CEO of the company last weekend, and says his focus has been on informing investors and creditors about the state of the two funds.

Máni attributes the funds’ losses to several factors. “The expected sale of the real estate company Upphaf which was operated by Gamma: Novus has been re-evaluated, the cost increases have been underestimated, and we are using a different approach to assess the company’s interest costs in the future. It’s a similar situation with Gamma: Anglia, and our consultants in the UK say projects are in an uncertain position and have therefore been downgraded.”

Losses could affect workers

VR labour union’s Director Ragnar Þór Ingólfsson says he hopes that the affected pension funds launch an investigation into the matter. Ragnar says the losses could have far reaching effects, including higher premiums for workers. “There seems to be a similar aftershave smell to this case as many cases following the banking collapse,” he stated.

According to Kjarninn’s sources, nearly all of the two funds’ investors are calling for a thorough investigation to find out what caused their losses. Gamma’s directors are expected to meet with the funds’ investors and creditors on Monday and say their focus is now on saving the assets that remain. Gamma is a subsidiary of Kvika bank, whose market value has dwindled in recent weeks, particularly after the state of the Novus and Anglia funds came to light.

Foreign Citizens’ Pensions Stranded in Iceland

currency iceland

Icelandic pension funds are in possession of considerable pension premiums they can’t refund or pay out because they can’t locate foreign workers who’ve left the country. The money can’t be taken on behalf of other pensioners because it isn’t known if the people are alive or dead. People from outside of the EEA and the US can have their pension premiums refunded when they leave the country but often they are not aware and leave the money behind.

About 2000 of Stapi Pension fund members have reached the age of 60 but have moved from the country and haven’t applied to have their pensions paid out. About half are Polish citizens who worked in Iceland for some period of time and gained pension rights. “We want to get the money to the people it belongs to, but if people don’t inquire about it themselves, and they haven’t left an email or a forwarding address, we have no chance of finding them. There’s a chance that some foreign citizens won’t collect their pension,” says Jóna Finndís Jónsdóttir, director of entitlements with the Stapi Pension fund.

According to Jóna, the amounts vary but many have the right to around 1 million ISK before taxes. The pension fund can’t take these funds into joint ownership until the fund member passes away but the pension fund has no way to find out if people are still alive. “There is no pan-European registry and we don’t know where people live or when they die so we can’t get information to them or check up on them,” says Jóna Finndís.

People who live outside the EEA and the US don’t have to wait to turn 60 to get their pensions paid out, they can have their premiums repaid when they move away from Iceland. In order to do that, they have to turn in a relocation confirmation, a statement from their employer and a copy of their plane ticket from Iceland. A group of people from Australia and New Zealand who came to Iceland to work in the meat industry has earned some rights in the Stapi pension fund, probably without their knowledge. “We would definitely want to see more cooperation between the pension funds, the Social Insurance Administration, and the National Registry to keep track of these individuals and their rights. Some part of that group, and we don’t know how many, had failed to inquire about their rights. Until now, nothing has been depreciated and there’s nothing in any rulebooks that allows us to do so,” says Jóna Finndís

Some of these 2000 people are people who haven’t applied for their pension payments yet, some are Icelanders who have moved abroad and others are choosing to delay their pensions payments. It can be assumed that other pension funds have the same problem.

According to Jóna Finndís, employers should remind their foreign staff of their rights when they quit. “We would like pension members to leave a forwarding address or, better yet, an email address. They tend to last longer than the forwarding addresses.”