Irish Finance Minster Michael Noonan laid out plans to ease the immediate burden of repaying the country’s banking debt, relieving the pressure on the government to return to international bond markets.
The state will effectively sidestep a 3.1 billion-euro ($4.1 billion) cash payment due this month to the former Anglo Irish Bank Corp. (ANGL) by issuing the nationalized lender with a bond. Deferring the cash payment frees up bailout funds that had been earmarked for the lender, he said.
“The funding that would otherwise have been used to make the payment should potentially allow greater flexibility around when and at what level Ireland returns to the capital markets,” Noonan told lawmakers in Dublin yesterday.
Ireland sought an international bailout in 2010 as investors shunned government and bank debt after a real estate bubble burst. Funded through 2013, the state had been aiming for a full return to the markets by the middle of next year. The plan also gives the government some breathing space to reach a wider solution in reducing the cost of its banking bailout.
“This temporary solution allows the Irish government to gain some time to try to extract as much concessions as possible from the Europeans and the European Central Bank,” said Thomas Costerg, an economist at Standard Chartered Bank in London. “Given all the concessions made to Greece recently, Ireland has the upper hand in the negotiations with the EU.”
Ireland’s October 2020 bonds, regarded as the benchmark, yielded 6.82 percent yesterday, down from 9.1 percent at the start of December.
The former Anglo Irish Bank Corp. and Irish Nationwide Building Society were merged last year to create IBRC. In all, the state has committed about 34.7 billion euros to the two real-estate lenders, and now wants European help to reduce the cost of saving the lender.
Noonan indicated he may ultimately seek to use the euro- area bailout fund to refinance the cost of bailing out IBRC.
The March deal “could be taken as a signal that the European authorities no longer see” the current Anglo Irish financing arrangements “as set in stone,” Noonan said, adding that a wider solution is more likely in the autumn than in July.
Under Noonan’s plan, the state will give IBRC the bond. Bank of Ireland Plc, the country’s biggest lender, will buy the bond from IBRC after it gains shareholder approval and can use it as collateral to tap ECB Funding.
IBRC, which is obliged to buy the security back within a year, can use the proceeds to reduce its borrowings from the Irish central bank. IBRC’s total Irish central bank funding rose to 40.1 billion euros last year from 28.1 billion euros in 2010, it said.
The plan is “a positive in terms of Ireland’s funding profile and will save the country 3.06 billion euros in cash that had been set aside to meet the repayments in 2012,” Brian Devine, economist at Dublin-based NCB Stockbrokers, said in a note yesterday.
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