“An extensive agreement has been reached regarding the debt restructuring of small and medium enterprises. The signatory parties are the Ministry of Economic Affairs, the Ministry of Finance, SA – the Confederation of Icelandic Employers, the Icelandic Federation of Trade, the Iceland Chamber of Commerce and the Icelandic Financial Services Association. It is the view of all signatories that the agreement is a necessary factor in promoting new investment in the Icelandic economy, leading to growth and job creation.
The agreement involves speeding up the process of debt restructuring for small and medium enterprises, featuring common guidelines and reforms to the tax code. Financial institutions aim at concluding a review of the companies concerned before June 2011 and offering viable enterprises debt restructuring. The aim is that a company’s debt will not exceed its reappriced [re-appraised? IceStat] value following debt restructuring. The agreement will be enforced with monthly evaluation of progress with all parties participating.”
This is possibly the greatest investment opportunity Iceland has ever presented. In short, Icelandic banks have decided to lower the debt burden of a selected group of companies from a pool of 7,000. Some of these firms are in market leadership position with strong cash flows.
Target firms have strong cash flows but excessive debt burden; so great, in fact, that they are technically bankrupt. A fund or investment group buys a handful of these firms at fire sale price. 6 months down the line, the bank slashes the target firm’s debt so it becomes fully functional again. The firm’s value goes up as the debt ratio goes below 100%.
We have formulated a plan by which it is possible to know precisely what firms the banks will help and to what extent. Also, the investment for controlling power will be a fraction of the firm’s actual worth, which means that it can be sold almost immediately after the debt reduction at a high margin. Setting everything up will take some time. There is a window of opportunity right now that will close quickly. The downside is drastic tax hikes that work against this otherwise positive scenario.
There is also room for new entrants on the market scene that can compete effectively against the over-leveaged firms. For more information, contact us.