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Ireland looks to borrow at least €3bn from banks
Real estate news By RTE.ie
Friday October 12 2007
IRELAND plans to launch its biggest ever foray into the market for government loans, seeking to borrow at least €3bn from international banks. The move has been prompted by the fact that some €6bn of the country's €36bn national debt is due for repayment this month. The money has to be replaced by fresh borrowings, but the size of it has persuaded the National Treasury Management Agency (NTMA) to try to raise long-term funds from a syndicate of banks, rather than auction government bonds in the market. This would be the first such syndicated loan since Ireland joined the euro in 1999, as well as the biggest ever.
Ireland has been running budget surpluses or small deficits for the past 10 years, so there has been little new borrowing. But old debt is regularly replaced, usually by monthly auction where banks bid for government bonds. The higher the price they are prepared to pay, the lower the interest bill for the taxpayer. In this case, Davy Stockbrokers have joined three big international banks, Deutsche, HSBC and Barclays, in seeing what rate banks would accept in a syndicated loan of €3-5bn. But the move comes in the middle of the credit crunch, which has pushed up general interest rates and made banks more risk averse. That should be good for the rate paid by highly solvent, virtually risk-free governments. But as fears of recession receded, and the prospect for interest rate cuts faded this week, government bond rates had their worst run since the end of May.
The rate on the 10-year German government bond, which is the benchmark for Europe, stood at 4.4pc yesterday. NTMA would hope to secure a rate similar to that on French bonds, of around 4.43pc. It would also be interested in borrowing some of the funds over 15 years, which currently costs around 4.65pc. The NTMA is not certain what the reaction will be to a large loan over as much as 15 years." We will do €3bn, but we would like to do up to €5bn if the reaction is good," Dr Somers said. "We would be happy enough with 10-year money, but we would do 15 if the price is right." The loan will go through in the next two weeks.
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