UPDATE 2-Iceland court agrees to probe freeze on bonds owned by foreign funds

* Iceland court says experts can probe decision to freeze
bonds

* U.S. fund Autonomy says preparing the ground for court
case

* Iceland finance ministry says unsurprised by court move

(Adds quotes from U.S. fund’s lawyer, changes story slug to
ICELAND-BONDS/US FUNDS from previous ICELAND-US FUNDS)

By Ragnhildur Sigurdadottir and Marc Jones

REYKJAVIK/LONDON, Dec 1 A Reykjavik court will
appoint independent experts to look at Iceland’s decision to
freeze more than a billion dollars worth of bonds owned by
foreign investment funds earlier this year as part of its
capital controls.

The ruling is the latest stage of an ongoing battle between
the funds and the government over how to unfreeze the assets.

“As requested by Autonomy Capital LP, Autonomy Master Fund
Limited, GAM Trading (No.37) and Autonomy Iceland
Two S.a.r.l, the expert appraisers will be appointed,” the
Reykjavik District Court said in a Nov. 30 decision.

Iceland, which has had capital controls in place since 2008
when a banking collapse brought its economy to its knees, froze
the funds’ bonds in a special low-interest account in May.

The move was designed to avoid a sudden rush of money out of
the country as it began the delicate process of removing the
controls, but it has angered the funds that claim it was
unnecessary.

GAM Trading is part of U.S.-based Autonomy Capital which has
taken the lead in challenging Iceland’s government over its
actions.

The lawyer representing Autonomy, Pétur Örn Sverrisson, said
the process was likely to take “several” months at least.

Last month the funds, which include Boston-based Eaton
Vance, Loomis Sayles and Discovery Capital Management, saw a
parallel complaint rejected by the European Free Trade
Association Surveillance Authority.

“We are pleased that the court has ruled in favour of our
motion,” Sverrisson said.

“We will continue to pursue all avenues to resolve the issue
until the government of Iceland decides to justly resolve
capital controls for all investors.”

Once identified, the experts are expected to look at the
premise and the economic rationale of the government’s move to
effectively freeze the funds’ bonds as it was preparing to take
the first step in removing its capital controls.

“What we are really doing by having the expert appraisers
look at this is that we are gathering evidence to use in a
potential court case,” Sverrisson added. “No decision has been
made in relation to the exact contours of that case.”

The Iceland finance ministry responded on Thursday saying:
“Generally the courts accept that appraisers are appointed and
as such the conclusion of the District Court is not a surprise.”

“The Icelandic government has stated from the beginning that
the owners of off shore kronur will not be subjected to
limitations any longer than necessary and nothing has changed in
that respect.”

It reiterated that it would make a new assessment of when to
take the next step in removing the restrictions early next year.

(Additional writing by Daniel Dickson; Editing by Alistair
Scrutton/Keith Weir)

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