ICELAND - The Enterprise Investment Fund (FIS), the investment company established by 16 pension funds in December 2009, has made its first investment of ISK3bn (€19.1m) into Icelandair Group.
Icelandair has been relatively successful in its day-to-day operations over recent months.
However, high financial expenses and large short-term debts have had a negative impact on the group's position, and since the end of 2008, it has been working with banks and other creditors to agree a financial restructuring plan.
Under the terms of the transaction, the FIS will subscribe to ISK1.2bn in new shares at the price of ISK2.5, for a total of ISK3bn.
Icelandair Group will then issue a further ISK1bn in new shares to be sold at the same price before 31 July, with the aim of raising approximately ISK5bn from share capital in total.
In addition, Icelandair's largest creditor will convert debts of ISK3.6bn into shares priced at ISK5 each, which will allow the company to restructure to reduce its debt by more than ISK10bn through the sale of certain assets, although none of the debt will be written off.
The FIS is owned by 16 Icelandic pension funds, after the investment company was set up to allow the schemes to serve as a "direct participant and an influential force in the financial resurrection" of the Icelandic business sector following the collapse of the financial system.
The funds initially contributed ISK30bn to FIS in the form of share capital.
However, this figure may increase, as the fund is still open to subscriptions from other pension funds.
Finnbogi Jónsson, chief executive of the FIS, said: "Icelandair is an extremely important company for our community. It has played a key role, and will continue to play a key role, in the growing tourist industry in Iceland.
"The company is staffed by extremely capable employees, totalling about 2,000 people, and we are convinced this can be a favourable and profitable investment for the fund."
Jónsson confirmed discussions with Icelandair had been ongoing since March and noted the flexibility shown by the company and employees at the time of the eruption of the volcano Eyjafjallajökull was a "major factor in convincing us our faith in the company and its future is well founded".
He added: "We will acquire approximately a 30% share in the company, making us its largest single shareholder."
Although this is the first investment by the fund, it is expected it will continue to make allocations over the next three years, while the lifetime of the fund is projected at 10 years.