Íslandsbanki has issued Isk4bn (Eu25m) of covered bonds off a Isk100bn programme today (Wednesday), the first wholesale funding by an Icelandic financial institution since the collapse of the country’s banking system in 2008. The inflation linked issuance is also the first under Icelandic covered bond legislation.

Íslandsbanki said in a statement that the covered bonds mark an important step in rebuilding Iceland’s capital markets.

Birna Einarsdóttir

“We are thrilled to have reached this milestone which can be seen as an important part of resurrecting the domestic financial and capital markets,” said Birna Einarsdóttir, Íslandsbanki’s CEO. “We were determined to issue the covered bonds in Iceland in order to be able to offer a new investment opportunity to domestic investors.

“The issue represents an important step in strengthening the Icelandic financial market and will contribute to its development.”

Since October 2008, Íslandsbanki has been almost solely funded by deposits, said the bank, so the covered bonds represent an important diversification of funding sources.

The covered bonds pay a 3.5% coupon and the principal repayment is linked to inflation. The deal was oversubscribed and sold to a broad group of domestic institutional investors, according to a spokesperson for the bank, which arranged the issue.

“There was little appetite for non-inflation linked bonds at this time among investors,” she told The Covered Bond Report. “Inflation linked debt has been the prevailing format in Iceland for many years.”

The covered bonds have a maturity date of 7 December 2016 but are extendible to 7 December 2019.

As reported on The Covered Bond Report, Íslandsbanki received a licence to issue covered bonds from the Icelandic FSA on 30 September.

The bonds, like the issuer, are unrated.

The prospectus can be found by clicking here.