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The Bright Side

Some Icelandic companies have found a silver lining during their country's financial meltdown.
John Zhu, CFO Europe Magazine
December 8, 2008

For Bogi Nils Bogason, the timing wasn't ideal. On October 9th, the day before he took over as CFO of Reykjavik-based airline, Icelandair, the country nationalised Kaupthing, the last of the island's three largest banks to fall victim to the financial meltdown.

Yet, despite the upheaval, Icelandair, like other internationally focused firms in the country, has found a silver lining amid the gloom. The company needs to refinance IKr2.5 billion (€8.8m) of debt due in January, a burden made lighter by the depressed value of the local currency. Only around one-fifth of its revenue is in the rapidly depreciating krona.

In fact, the crisis hit Icelandair hardest in Luxembourg, of all places, because it had IKr500m of deposits at branches of Landsbanki and Kaupthing in the country seized by administrators in mid-October. Bogason says that he is still not sure how much of these assets he can recoup, as Luxembourg has guaranteed deposits up to only €20,000 per account.

Meanwhile, Rafnar Larusson, vice president of treasury at Actavis, an Icelandic pharmaceuticals group, says that despite generating only 1% of revenue from Iceland, "we had suppliers asking whether we could pay them given the news coming out of Iceland. In some cases, they wanted prepayment just to show that we were capable of it."

Fortunately, Actavis spread its banking relationships more widely a few months ago, involving 50 institutions around the world. As a result, the company could provide creditors with statements from myriad banks confirming its ability to pay. "We were quick to regain credibility," says Larusson. And, like Icelandair, a weak krona had its benefits for the firm, which reports in euros. "We now have to spend less euro income to pay costs and salaries in Iceland," Larusson adds.

Actavis began noticing foreign currency shortages in the Icelandic banking sector in March, the treasurer says. There were other signs of trouble, such as when hedging krona exposure became a major chore. "It was nearly impossible to take out forward contracts longer than one or two weeks," he recalls.




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