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S&P: Iceland Ratings Placed On CreditWatch Negative Following Icesave Veto

January 06, 2010 | Standard & Poor's

FRANKFURT (Standard & Poor's) Jan. 5, 2010--Standard & Poor's Ratings Services
today said it placed its 'BBB-/A-3' foreign currency and 'BBB+/A-2' local
currency sovereign credit ratings on the Republic of Iceland on CreditWatch
with negative implications.

The CreditWatch placement indicates the likelihood of a downgrade if
political uncertainty grows and external liquidity pressures persist in the
wake of President Olafur Ragnar Grimsson's veto of the "Icesave Act," which
parliament passed on Dec. 30, 2009.

The vetoed legislation would have extended a sovereign guarantee for a
loan by the Dutch and U.K. governments to the Icelandic deposit guarantee
fund. The proceeds of that loan, in turn, would have reimbursed the Dutch and
U.K. governments for having compensated depositors in Icesave, a branch in The
Netherlands and the U.K. of the failed Icelandic bank Landsbanki. Resolution
of the Icesave issue is a condition for ancillary bilateral funding from
Nordic nations that is part of Iceland's IMF agreement.

"As a result of the veto, we expect that disbursements on the remaining
$2.3 billion balance under the IMF program will be delayed and the parameters
of the program might have to be reworked, possibly including raising the
required primary surplus targets," said Standard & Poor's credit analyst Kai
Stukenbrock. "The financing is key to bolster the central bank's foreign
exchange reserves, currently about ?2.5 billion, and to permit an eventual
easing of capital controls put in place in late November 2008."

"We expect to resolve the CreditWatch placement this month once there is
greater clarity about the political will to enact other measures to restore
investor confidence and about the availability of official external
financing," said Mr. Stukenbrock. "Should a political impasse persist or
should we deem that Iceland's access to official external financing has been
affected, we could lower our ratings on Iceland by one or two notches."

Company: Iceland

Full company nameIceland
Country of riskIceland
Country of registrationIceland


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