Tuesday 26 September 2017

Electricity supplier shelves its plans for inflation-linked bond

Donal O'Donovan

Donal O'Donovan

THE ESB has shelved plans to borrow using a new type of bond because of delays by the pensions regulator in bringing forward new financing rules.

The State-owned Electricity Supply Board (ESB) said yesterday that it "is not the right time" to move ahead with plans to issue its first ever inflation-linked bond.

Inflation-linked bonds are designed to ensure a return to investors regardless of a rise in inflation, because the repayments increase if inflation rises.

However, plans to issue the new bond have been put on hold until the Pensions Board, which regulates pension funds, clarifies just how such assets will be treated in terms of pension funding standards, according to Bernardine Maloney, a spokeswoman for ESB.

The inflation-linked bond structure had been chosen by the ESB in an effort to widen its appeal to new types of investor, most importantly to Irish pension funds.

Certainty

Many Irish pensions have a desperate need to buy securities that provide certainty over long-term income and returns that at least keep pace with inflation.

The National Treasury Management Agency (NTMA) also has plans to issue inflation-linked bonds, so it is affected by the same issues.

The ESB is further advanced with its plans for the bonds, after hiring Bank of America Merrill Lynch and Goodbody Stockbrokers to assess investor interest earlier this month.

That is now on hold, but the ESB has not cancelled its plan to issue the new-style bond. It will need to wait for regulatory certainty before progressing.

A Pensions Board spokesman said the issues are complex but that work on the matter is under way. "Progress is expected shortly," he said.

Resolving the matter is also important for NTMA as it too wants to raise money by issuing inflation-linked bonds, again targeting what it believes is pent-up demand from managers of Irish pensions that are in deficit.

NTMA borrows in the markets on behalf of the State, which means its hopes of tapping demand for inflation-linked bonds is part of the wider effort to exit the EU/IMF bailout.

Irish Independent

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