The National Treasury Management Agency is taking steps to issue some €3 billion in new debt as the Government advances its plan for the early repayment of some €6.1 billion in IMF loans by the end of the year.
The development comes amid expectation that Minister for Finance Michael Noonan will dip into the State’s €28 billion cash reserve to defray some of the IMF loans. Such a move would lead to a net reduction in the sum of the national debt.
In a statement yesterday, the NTMA put markets on notice that it is preparing to sell a bond of benchmark size through a banking syndicate to investors. A benchmark-scale sale would generally be in the region of €3 billion.
The NTMA said the transaction would be subject to “satisfactory progress with respect to the protocols required to facilitate early repayment of part of Ireland’s IMF programme loans”.
It was already known that the Government plans to pay off €6.1 billion of the IMF debt before the end of the year, although formal approval is still awaited from a number of EU member states.
It follows that a bond sale of some €3 billion for this purpose would leave the €3 billion balance to be drawn from the Government’s cash pile. The reserves have been held at a very high level as a precaution against any return of volatility in sovereign debt markets.
Documents prepared by the EU/IMF troika on the refinancing plan made it clear that the Government’s aim was to issue 10-year bonds to refinance some of the debt.
The basic objective is to pay off the relatively expensive IMF portion of the bailout debt, which carries an average annual effective interest rate of 3.47 per cent, with new debt raised on private markets, where the annual 10-year borrowing cost at the moment is less than 1.7 per cent.
The NTMA also said it will conduct a separate bond auction next Thursday. Although auction details will not be disclosed until Monday, the scale of such transactions is generally in the range of €750 million to €1 billion.
It remains unclear whether this bond would be sold for general Government purposes or with the repayment of IMF loans in mind.
The NTMA also said it will carry out a Treasury Bill auction on November 20th. Such sales of short-term debt generally raise in the region of €500 million and the debt typically matures at three months.
