The National Treasury Management Agency (NTMA) today reported results for 2012 and provided a review of activities across the range of its business functions.
Speaking today, NTMA Chief Executive John Corrigan said that Ireland had made considerable progress in its phased return to the markets over the past year and, with the success of yesterday’s €2.5 billion syndicated bond sale, had eliminated the “funding cliff” presented by a €11.9 billion bond repayment due in mid January 2014. The NTMA intends to step up its re-engagement with the market during 2013 so that Ireland is positioned to successfully exit the EU/IMF programme. Its working plan is to raise €10 billion, subject to market conditions, of which one quarter has been achieved with yesterday’s bond sale. Mr Corrigan also said the NTMA would continue its regular auctions of short-term Bills, which recommenced in July 2012, with the first 2013 auction scheduled for Thursday 17 January.
“Achieving a quarter of our funding plan for 2013 with yesterday’s bond sale is a very encouraging start to the year,’’ said Mr Corrigan. “The progressive reduction of the January 2014 “funding cliff” has been viewed positively by the investment community and, allied to the fact that it demonstrates that we can raise funds in the market, has been a contributory factor to the fall in Irish bond yields.”
“Ireland’s consistent delivery on its EU/IMF programme commitments has been central to the fall in bond yields. Nonetheless, Ireland’s continuing access to the international bond markets also remains critically dependent on external factors, particularly developments at a wider eurozone level.”
Mr Corrigan said that managing Ireland’s return to the international bond markets is a priority for the NTMA but the Agency remains engaged on a number of other fronts: providing a mechanism for commercial investment in Ireland via the National Pensions Reserve Fund; drawing on the National Development Finance Agency’s PPP expertise to assist with the delivery of the Government’s infrastructure stimulus package; leading and managing the Bord Gáis Éireann transaction on behalf of the Government (NewERA); and dealing with third-party costs arising from certain Tribunals of Enquiry (State Claims Agency).
Funding and Debt Management
The NTMA continued its intensive investor relations programme in 2012 to help generate renewed interest among institutional investors in Irish Government bonds and to sustain existing investments. It conducted non-deal road shows in Ireland, the US, UK, Europe and Asia in the Spring and Autumn of 2012 in addition to visiting investors in the UK and mainland Europe in June.
2012 witnessed a significant decline in Irish Government bond yields (which move inversely to prices) with the yield on Ireland’s benchmark 2020 bond ending the year at 4.43 per cent compared with 8.26 per cent at end 2011. The decline in yields on shorter maturities was even more pronounced, restoring a more normal upward slope to the Irish yield curve compared to the inversion that characterised much of 2011. Positive external developments assisted the Irish bond market during 2012, particularly the EU leaders’ statement of 29 June on the necessity to break the link between sovereign and banking debt and their reference to improving the “sustainability of the well-performing Irish adjustment programme.” The ECB’s announcement in September of a commitment to buy sovereign bonds in the secondary market with a focus on maturities of one to three years (Open Market Transactions, or OMT) led to a sharp rally at the short end of eurozone yield curves.
During 2012, the NTMA’s engagements with the debt markets included bond switches (€4.5bn); the issuing of conventional bonds (€4.2bn); the issuing of a completely new debt instrument, Irish Amortising Bonds, tailored to meet the needs of the domestic pensions industry (€1.0bn); and a return to the short-term debt markets through regular Treasury Bill auctions (€1.0bn net).
Funds drawn down under the EU/IMF programme amounted to €56 billion at 31 December 2012. Loans from EU sources amounted to €37 billion and IMF loans amounted to €19 billion. The estimated all-in euro equivalent cost of loans received under the EU/IMF programme was 3.36 per cent at end December.
The NTMA’s own market funding combined with drawdowns under the EU/IMF programme during 2012 were applied to fund an Exchequer deficit of €14.9 billion and to refinance €5.6 billion of maturing debt. The NTMA maintained Exchequer cash and deposits of €19.3 billion at year end. Exchequer debt service costs in 2012 were €6.5 billion.
The General Government Debt (GGD)1 , the standard measure used for comparative purposes across the European Union, was estimated by the Department of Finance at 118 per cent of GDP at end 2012. The GGD/GDP ratio is projected to peak at 121 per cent in 2013 and to start to decline thereafter.
National Pensions Reserve Fund2
During 2012 significant progress was made in refocusing the NPRF’s investment towards commercial investment in Ireland. The NPRF has today announced investment commitments to three new long-term funds that will provide €850 million of equity, credit and restructuring / recovery investment for Irish small and medium-sized businesses (SMEs) and mid-sized corporates. The NPRF played a significant role in the development of the funds and will be a cornerstone investor in each alongside additional investment from third-party investors. The three funds will involve a total commitment by the NPRF of up to €500 million (see separate statement issued by the NPRF today for details).
Other Ireland-focused initiatives during 2012 include the provision of a standby facility to enable the Schools Bundle 3 PPP project (eight primary and post-primary schools) to proceed with European Investment Bank (EIB) financing and the NPRF’s collaboration with Silicon Valley Bank which will make US$100 million of new lending commitments available to fast-growing Irish technology, life science, cleantech, private equity and venture capital businesses.
The NPRF’s Discretionary Portfolio (the Fund excluding the public policy investments in Bank of Ireland and Allied Irish Banks made at the direction of the Minister for Finance) earned a preliminary return of +7.3 per cent in 2012. In light of the Government’s stated intention to refocus the NPRF’s investment towards Ireland, since mid 2011 the Fund has been more focused on capital preservation – via the purchase of options and a reduced exposure to equities – while maintaining its capacity to participate in gains if markets perform well. Since the Fund’s inception in April 2001, the Discretionary Portfolio has delivered an annualised return of +3.7 per cent per annum.
The total return in 2012 on the Directed Portfolio (comprising ordinary and preference shares in both Bank of Ireland and Allied Irish Banks) was +10.4 per cent. The Fund’s ownership of Bank of Ireland is 15.1 per cent and of Allied Irish Banks is 99.8 per cent. At 31 December 2012 the total value of the National Pensions Reserve Fund was €14.7 billion, comprising the Discretionary Portfolio of €6.1 billion and the Directed Portfolio currently held at €8.6 billion.
