A fast developing market

While many European stock exchanges can trace their history decades or even centuries back, the Iceland Stock Exchange has just emerged from its adolescence. Established in 1985 as a joint venture of banks and brokerage firms at the initiative of the Iceland Central Bank, ICEX has developed very quickly in recent years.

Trading began in 1986 in T-bonds, which were the only listed securities for the first few years. They were the dominant component of trading value until 1993. In 1990 housing bonds (mortgage-backed securities with a State guaranty) were listed. The first equities were listed in 1990. In 1991 a joint effort by various financial institutions and industry groups succeeded in generating support and momentum for the idea of building up a proper exchange for shares. As a result, many companies began the listing process in 1992, with an average of six new listings per year from 1992 to 1996. By the end of 1996 a total of 32 companies had been listed. A big boost came in 1997 (19 listings) and 1998 (16 listings). Eight new companies were listed in 1999 and nine the following year. In 2000, for the first time, a number of delistings took place as a result of mergers and acquisitions. By the end of 2000 a total of 75 companies were listed. In 2001 more mergers and delistings resulted in a decrease of listed companies, the number at the end of that year was 71. This declining trend continued in 2002, the listed companies in late 2002 totalling 67.

In April 1998 the Icelandic Parliament passed a new law on securities exchanges, abolishing the monopoly and requiring ICEX to change its legal status from a self-owned institution to a limited company with shareholders. The exchange became a limited company on 1 January 1999. In June 2002, after shareholders’ meetings of the Iceland Stock Exchange (ICEX) and the Icelandic Securities Depository (ISD), a new holding company, Eignarhaldsfelagið Verðbrefaþing hf., was established for the operation of both companies. The holding company is owned by financial institutions (37.7%), listed companies (24.5%), pension funds (13.4%), the Central Bank (11%), the Investor Association (9%) and the Treasury (4.4%).

ICEX launched its first trading system in 1989, which allowed continuous order-driven and accept-based trading. Trading has always been electronic. In 2000, ICEX adopted SAXESS, the common trading system of the NOREX Exchanges. The system is highly efficient and all trades are automatically matched.

Since June 2000, ICEX has been a partner of the NOREX Alliance together with the exchanges in Copenhagen, Oslo and Stockholm. NOREX is the first cross-border exchange alliance operating a joint trading system, harmonised trading rules and membership criteria for the participating exchanges. This greatly simplifies matters for brokers who can now trade in several markets at very little additional cost. Each exchange continues to conduct its own trading activities and a key concept is the single point of liquidity. Issuers of securities do not have to list on more than one exchange but the members are encouraged to join more than one exchange. NOREX provides a simplified access to c. 80% of the Nordic equity market.

The Reykjavik City Hall

Market developments
ICEX lists both traditional fixed-income instruments, such as Treasury bonds and bills, and equities. Until last year there was a steady increase in number of listed companies, trading volume and market capitalisation on the stock market. The trend in 2001 was downwards, whereas the bond market bloomed after some recession in 2000. The total turnover from January until mid September 2002 already exceeded the turnover in 2001 and is thus the largest year in terms of trading volume from the beginning.

There are currently 67 companies listed on the ICEX Main List, Growth List and the Alternative Market. The largest sector in terms of market capitalisation is finance and insurance with a third of the total market cap. However, fisheries have the largest number of listed companies (16), which is in line with Iceland’s strong position among fishing nations of the world. The market value of listed equities is 64% of GDP while the bond market capitalisation amounts to 75% of GDP.

Some of the ICEX listed companies have looked abroad to expand, and should for many reasons be interesting investment opportunities for foreign investors.

Back up

Baugur (www.baugur.is) owns, invests in and develops businesses in wholesale and retailing. Baugur operates Iceland's largest grocery chains and a domestic warehouse and distribution centre for the retail industry. Baugur is also the franchisee for Debenhams and Arcadia brands, such as TopShop, Miss Selfridge, Warehouse and Burtons in Scandinavia. Baugur owns Bonus Stores Inc. in USA but recently sold its substantial share in Arcadia stores in UK.

Bakkavör Group (www.bakkavor.com) is an international company specializing in the production, sales and distribution of chilled food products, under the brands of its subsidiary companies or in the private labels of retail chains. Bakkavör operates subsidiaries in 7 countries outside Iceland, i.e. UK, Chile, Poland, Germany, France, Sweden and Finland.

Ossur (www.ossur.is) is at the forefront of research, development and production in the field of prosthetics (artificial limbs). It is the second largest company of this kind in the world and the first one to go public and list on a stock exchange. The company’s products are sold in more than 60 countries worldwide and it has operations in the UK, USA, Netherlands, Sweden and, of course, Iceland.

Marel (www.marel.is) is one of the world’s leading developers and manufacturers of hi-tech, super-fast scales, software, monitoring equipment and intelligent portioning and grading modules and integrated systems for all major sectors of the food industry. As of 2002, the Marel Group operates ten subsidiary companies in Australia, Europe and North America, while its network of agents and distributors covers some 27 countries on five continents.

Delta (www.delta.is) is a pharmaceutical company with operations in Iceland as well as in Malta. Some 70% of Delta's revenues derive from sales outside Iceland and 30% from the home market. The share of pharmaceutical know-how has grown sharply and now accounts for 20% of export revenues, compared with 80% from sales of pharmaceutical products. Delta has licences to market its products in 20 countries. Delta is to be merged with Pharmaco, which will create the largest company listed on ICEX.

Pharmaco (www.pharmaco.is) is the largest producer of pharmaceuticals in Iceland, with about 35% of the market. A step towards the globalisation of the company was taken with the purchase of Balkanpharma in Bulgaria. The merger of Pharmaco and the Bulgarian company changed Pharmaco’s position in the market from a pharmaceutical wholesaler in Iceland to a manufacturer in the pharmaceutical industry, with a strong market position in Central and Eastern Europe. Pharmaco is to be merged with Delta, which will create the largest company listed on ICEX.
 

The benchmark index for equities, ICEX-15, comprises the 15 largest companies in terms of market value and turnover. The index rose by 12% during the first nine months of 2002, not reflecting the general trend in other Nordic and European stock markets. The group of ten most traded companies accounts for about 60% of the total turnover on the equity market at any given time.

Bonds are also attractive
There was an 88% increase in bond turnover in 2001 compared to the previous year. Figures for 3Q indicate a further increase in the year 2002. The market value of bonds has also increased slightly between 2001 and 2002. Treasury bonds and the state-guaranteed mortgage bonds dominate the market for fixed income instruments. The bond market offers excellent investment opportunities, especially the very long-term bonds of up to 40 years maturity as the spread between domestic and foreign interest rates is close to 390 bp. The turnover in benchmark categories accounts for approx. 70% of the total bond turnover. Furthermore, the majority of the bonds are either issued by the Treasury or guaranteed by it. The obligations of the Icelandic Treasury in domestic currency have the excellent ratings of an AAA from Moody’s and Fitch IBCA and an AA+ from Standard & Poor’s.

Back up