SUPPLEMENT DATED 7 MAY 2020
TO THE INFORMATION MEMORANDUM DATED 7 JUNE 2019
Republic of Iceland
U.S.$5,000,000,000
Euro Medium Term Note Programme
This supplement (the "Supplement") is supplemental to, forms part of and must be read and construed in conjunction with, the information memorandum dated 7 June 2019 (the "Information Memorandum"), as may be further supplemented from time to time, prepared by the Republic of Iceland acting through the Ministry of Finance and Economic Affairs (the "Republic" or "Iceland") in connection with its Euro Medium Term Note Programme (the "Programme") for the issuance of notes (the "Notes").
Terms given a defined meaning in the Information Memorandum shall, unless the context otherwise requires, have the same meaning when used in this Supplement.
This Supplement does not comprise a prospectus or a supplement for the purpose of Regulation (EU) 2017/1129 (the "Prospectus Regulation"). Accordingly, this Supplement has not been and will not be submitted for approval to any competent authority within the meaning of the Prospectus Regulation. In particular no submission has been made to the United Kingdom Financial Conduct Authority, in its capacity as the competent authority for the purposes of the Prospectus Regulation.
The purpose of this Supplement is to: (i) update the "Risk Factors" section in the Information Memorandum; and (ii) update the "Public Finance" section in the Information Memorandum; and (iii) to include information in relation to certain recent developments.
IMPORTANT NOTICES
The Republic accepts responsibility for the information contained in this Supplement and declares that, to the best of its knowledge, the information contained in this Supplement is in accordance with the facts and does not omit anything likely to affect its import.
To the extent that there is any inconsistency between (a) any statement in this Supplement, including any statement incorporated by reference into the Information Memorandum by this Supplement, and (b) any other statement in, or incorporated by reference into, the Information Memorandum, the statements in (a) above will prevail.
Save as disclosed in this Supplement, no significant new fact, material mistake or inaccuracy relating to the information included in the Information Memorandum which is capable of affecting the assessment of the Notes issued under the Programme has arisen or been noted, as the case may be, since publication of the Information Memorandum.
AMENDMENTS OR ADDITIONS TO THE INFORMATION MEMORANDUM
With effect from the date of this Supplement the information appearing in, or incorporated by reference into, the Information Memorandum shall be amended and/or supplemented in the manner described below.
i. Updates to Risk Factors
The following shall be added as a new risk factor immediately following the risk factor entitled "Iceland's economy remains vulnerable to external shocks" in the section entitled "Factors that may affect the Issuer’s ability to fulfil its obligations under Notes issued under the Programme", starting on page 8:
"Exceptional circumstances and expected severe economic downturn due to the COVID-19 pandemic
The outbreak of the virus SARS-CoV-2 and the disease it causes ("COVID-19") poses a new risk to the global economy, including the economy of Iceland. As a country dependent on tourism, Iceland has been highly exposed to health, economic, and financial contagion from the global spread of COVID-19.
Whilst the direct and indirect impact of the COVID-19 pandemic remains uncertain, the Government and the Central Bank of Iceland have announced financial stimulus packages in anticipation of a very significant negative impact on the economy. See "Recent Developments - Government measures in response to COVID-19" for more information.
Weakened economic activity in Iceland due to the COVID-19 pandemic, and its effects on the health and wellbeing of Iceland's working population, combined with the wider impact to the global supply chain, markets and economies, and heightened volatility and adverse conditions in global capital markets, could impact business operations across Iceland's economy generally. Such weakening of the economy and/or operations could have a material adverse impact on the economic growth and performance of Iceland and the country’s trading partners. Any of these factors, individually or collectively, could adversely affect economic growth in Iceland and, consequently, have an adverse effect on Iceland's fiscal position."
ii. Updates to Public Finance
The following shall be added as the last paragraph in the sub-section entitled "Republic of Iceland's sovereign credit rating" in the section entitled "Public Finance", starting on page 94:
"Moody's Rating Upgrade
On 8 November 2019, Moody’s Investors Service upgraded Iceland’s long-term issuer and senior unsecured ratings to A2 from A3, Iceland’s senior unsecured MTN rating to (P)A2 from (P)A3 and other short-term rating to (P)P-1 from (P)P-2. The outlook on the ratings - stable.
The key drivers for the upgrade in the ratings were mainly twofold, firstly Iceland’s sizeable debt reduction and secondly improvements in economic resilience which reduces the country’s inherent vulnerability to shocks."
iii. Recent Developments
Government measures in response to COVID-19
The Government announced on 21 March 2020 a response package to the COVID-19 crisis. The total scope of the Government measures in response to COVID-19 could amount to more than 230 billion króna or 7.8% of GDP, entailing, on the one hand, deferral of paid taxes and other levies and, on the other hand, expenditure increases and tax cuts totalling more than 60 billion króna. In addition, the Treasury will support the economy with reduced tax revenues and increased expenditures as a result of weaker economic conditions. These broad-based measures complement the Central Bank’s decisions to lower interest rates, minimum reserve requirements, and countercyclical capital buffers.
The Government measures are very extensive and are intended to provide a strong counterweight to the economic impact of the pandemic. The primary aim of the Government measures is to make it easier for households and businesses to withstand the temporary loss of income, and are intended to reduce uncertainty and keep the economy moving, while aiming to prevent financial hardship to the maximum extent possible. The Government anticipates these measures will firmly support the economy when the pandemic has passed.
In addition, the measures are intended to counteract unemployment and temporary loss of personal income through partial unemployment benefits, access to third-pillar (private) pension savings, deferral of corporate tax payments, and operational loan facilities for companies. When the direct impact of the pandemic has eased, the Government will give strong support to the revitalisation of the economy with increased public investment intended to promote long-term GDP growth, tax cuts for labour done on-site at various workplaces, and a marketing campaign focused on Iceland as a tourist destination.
Additional Government measures were introduced on 21 April 2020. Support for small companies in operational difficulties, targeted help for students, strengthening of social support and a focus on innovation for the future were among the highlights of the second phase of Government measures. It was also announced that front-line healthcare workers who have been under additional strain and are at elevated risk of contagion would receive wage differential payments. The second phase measures amount to approximately 60 billion króna or 2.0 per cent. of GDP.
Further Government measures were introduced on 28 April 2020. Companies that have suffered substantial revenue losses due to COVID-19 will be given the opportunity to apply for government support to pay a portion of salary costs during the employee notice period, protecting workers’ rights and preventing a wave of corporate insolvencies. Support which allows workers to go part-time and receive top up payments from the government will be extended until the autumn, with amendments, and simpler rules on financial restructuring of businesses will be adopted enabling firms to seek protection easily. These measures amount to approximately 40-60 billion króna or 1.3-2.0 per cent. of GDP.
As the COVID-19 pandemic has had an adverse economic impact on economies worldwide, Iceland can expect a steep decline in the number of tourists visiting the country, particularly in the short-to-medium term. The pandemic is also influencing the behaviour and daily routines of Icelanders, who are visiting stores and restaurants less frequently, while it has also proven necessary to cancel many scheduled events. Production and manufacturing activity in Iceland could contract as well, due to measures taken by regulators and governments worldwide to halt the spread of the pandemic and disruptions to the global supply chain. It is therefore likely a large number of companies will suffer a decline in revenues because of the pandemic, not least in the tourism sector, and firms may resort to staff redundancies in response to this. The Issuer therefore expects COVID-19 to have a profound effect on the Icelandic economy; however, these effects are expected to reverse once the pandemic has passed, as, coupled with the Government's measures, the economy rests on solid foundations.
Financial Action Task Force ("FATF") Announcement
The FATF placed Iceland under increased monitoring on 18 October 2019. On 21 February 2020, the FATF published an update announcing that, Iceland had made a high-level political commitment to work with the FATF to strengthen the effectiveness of its anti-money laundering and combating the financing of terrorism ("AML/CFT") regime, Iceland had continued to take significant steps towards improving its AML/CFT regime, including by increasing the District Prosecutor's financial intelligence unit human resources to address the volume of suspicious transaction reports ("STR") and strengthen strategic analysis as well as ensuring effective supervision for targeted financial sanctions compliance and establishing sufficient resources and supervisory procedures to assess terrorist financing risks in the non-profit organisation sector. Iceland will continue to work on implementing its action plan to address its strategic deficiencies by: (i) finalising the collection of accurate Beneficial Ownership information and demonstrating the imposition of appropriate sanctions for non-compliance; and (ii) concluding work to introduce an automated system for STR filing.
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