Iceland’s Showdown With Creditors Arrives

The Icelandic government will tell hedge funds and other creditors in its failed banks how their claims can be settled this week, reports Bloomberg.

The government has reportedly designed a model to protect the ISK from any instability that might result from the easing of capital controls to enable repayment. The next step is to find out whether the creditors will accept the deal.

Currency restrictions have been in place in Iceland since 2008 and as Iceland begins to roll them back there has been talk that an exit tax of up to 40% on investors might be on the table.

“Creditors that are unfairly treated internationally do not just walk away,” said Timothy Coleman, senior managing director of Blackstone Group, which is advising bondholders in Kaupthing Bank hf. Coleman emphasised that creditors, who have brought claims against Iceland’s failed banks, will have a hard time accepting an exit tax.

That said, Coleman told Bloomberg that despite the differences between the two sides, he believes “a consensual deal is eminently achievable.”

As reported, the Finance Ministry in Reykjavík set the process for settlement in motion last week, when it authorised the former Landsbankinn’s bankruptcy estate to pay what amounts to 400 billion ISK in foreign currency (ca. € 2.6 billion), to priority creditors.

The week ahead should reveal what the government’s plans are, and whether creditors will be ready to get on board.

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