Hoppa yfir valmynd
Ministry of Finance and Economic Affairs

Capitalisation and compensation agreement between the Government of Iceland and the Resolution Comittee of Glitnir

The Government of Iceland and the Resolution Committee of Glitnir are pleased to announce that an agreement has been reached in respect of the initial capitalisation of Islandsbanki and the basis for the compensation payable to the creditors of Glitnir following the creation of Islandsbanki in October 2008. This will put Islandsbanki on a secure financial footing for its future development.

It has been agreed that Glitnir will subscribe for a majority shareholding in Islandsbanki (the “Subscription”). It is envisaged that shares in Islandsbanki will be held by Glitnir under the control of the Resolution Committee on behalf of its creditor base which largely comprises international institutional investors.

The Government will capitalise Islandsbanki on 14 August 2009 with an estimated ISK 60 bn. The Government capitalisation will be made pending the completion of the Subscription and, on completion of the Subscription, will be reduced.

On completion of the Subscription, Glitnir will own 100% of Islandsbanki and the Government will reduce its capital commitment substantially. The Government will continue to support the capital of Islandsbanki with ISK 25 bn in the form of high quality tier 1 and/or tier 2 capital instruments. In addition the Government will have the right to nominate a Board member.

There will be no changes to the status of depositors under Icelandic law as a result of these arrangements. Islandsbanki will, through the capitalisation and further liquidity support as part of the agreement, be in a strong liquidity position.

Hawkpoint is acting as exclusive financial adviser to the Government and UBS Investment Bank is acting as exclusive financial adviser to the Resolution Committee of Glitnir in this transaction. In addition creditor representatives participated in the negotiations.

Commenting on the agreement reached, Steingrímur J. Sigfusson, the Minister of Finance of Iceland said:

“We are pleased to have reached agreement with the Resolution Committee of Glitnir.  Islandsbanki will now be properly capitalised and we believe future ownership by Glitnir will allow Islandsbanki to develop with the benefit of the involvement of international shareholders.”

Commenting on the agreement reached, Árni Tómasson, the Chairman of the Resolution Committee of Glitnir said:

“I am very pleased with our progress.  I trust that this agreement will serve the needs of Islandsbanki and provide it with a solid starting point.  The agreement is intended to provide the creditors of Glitnir with the ability to maximise the value of their claims.”

Commenting on the agreement reached, Birna Einarsdottir, the CEO of Islandsbanki said:

“We welcome the participation of Glitnir’s creditors in Islandsbanki.  This is a major step towards rebuilding a new bank.  Linking together the interests of foreign creditors and the interests of Islandsbanki will accelerate the reconstruction of the Icelandic financial system and economy.  Islandsbanki’s employees have moved mountains in building up our new bank in recent months and this work will continue with renewed effort.  The bank’s operations are very cost-efficient and our heritage and expertise in the geothermal energy and fisheries sectors will continue to provide us with an important advantage and international scope.”

Key terms of the agreement

In the event that the Subscription is not completed, the Government capitalisation will remain in place and the Government will continue to own Islandsbanki.  In this case, the compensation will take the form of bond instruments to be issued by Islandsbanki and an option over 90% of the Government’s shareholding in Islandsbanki subject to the Government earning a reasonable return on its investment.  The option over Government equity will be exercisable between 2011 and 2015.

The agreement remains subject to documentation, due diligence, creditor consultation and the approval of the Icelandic Financial Supervisory Authority, the FME.

It is envisaged that final agreements will be signed prior to 14 August 2009 and that the capitalisation by Government will occur at that date. Thereafter, it is expected that the Resolution Committee will prepare information in conjunction with Islandsbanki as part of a creditor consultation exercise.

Ministry of Finance, July 20 2009


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