Bailout lender to raise €5bn this week
Published 14/06/2011 | 05:00
THE European Financial Stability Facility (EFSF), one of the vehicles that raises the cash that pays for Ireland's bailout, plans to raise €5bn of 10-year bonds this week.
Barclays Capital, Deutsche Bank and HSBC will manage the new deal -- the second bond issue by the EFSF which was only set up last year.
The battering of risky bonds in the market yesterday could help increase demands for the EFSF's new AAA-rated paper, which is regarded as a 'super-safe' investment.
In January, investors placed orders to buy €45bn of EFSF bonds, even though the company only raised €5bn of the paper. The EFSF paid an interest rate of 2.9pc for the debt and loaned the cash to Ireland at 5.9pc.
Proceeds of the new 10-year bond will be used to fund bailout loans for Portugal, not Ireland. However, the bond deal will be closely watched here because the interest the EFSF pays to borrow determines how much the fund charges to lend on the cash raised.
Last month, a sister vehicle, the European Financial Stability Mechanism (EFSM), sold €4.75bn of 10-year bonds that fund loans to Ireland and Portugal and €4.75bn of five-year bonds that will only go to Portugal. In the May deal the EFSM paid 3.5pc to borrow over 10 years, and 2.75pc to borrow over five years. The EFSF is likely to pay slightly higher for its loan. The EFSM is a borrowing vehicle for the European Commission, while the EFSF is a private company but its bonds are guaranteed by eurozone countries including France and Germany.
The EFSF plans to issue another €3bn of five-year bond later in the summer.