Wednesday 21 February 2018

Analysis: Sale means €28bn will not be included in our national debt

Donal O'Donovan

Donal O'Donovan

THE sale of a 17pc stake in the vehicle that controls NAMA is good news for the Government.

It means debts of €28bn owned by the agency to bailed-out banks will not now be included in official European calculations of the national debt.

That became a risk when the state took control of Irish Life earlier this year.

At that time Irish Life owned the 17pc stake in the "special purpose vehicle" (SPV) that had been set up to bring private investment into NAMA through a structure designed purely to keep the massive toxic debt agency off the national accounts.

Back in 2010, when NAMA was set up, its borrowings had threatened to damage the country's credit profile if they were added to the national debt by international agencies including the European statistics agency Eurostat that monitors the so-called 'Maastricht criteria' setting out maximum debt levels for countries in the euro.

The SPV was set up to get around that problem by bringing in private investors to hold a majority stake in the key parts of the NAMA structure.

The original investors were funds managed by AIB Investment Management, Bank of Ireland's New Ireland Assurance and Irish Life & Permanent. They each took a 17pc share of the SPV in exchange for a €17m investment.

NAMA has refused to say how much the stake was sold for, despite it and Irish Life being government owned, but the price is likely to have been relatively modest.

Investors buy into the SPV knowing they can only ever hope for a limited return on the deal.

If NAMA loses money investors will be wiped out. If it makes a profit investors could be paid a 10pc profit on their original investment, just €1.7m each. The bulk of potential profits will go to the State.

In addition, the investors can also receive a discretionary dividend -- last year's was 10pc, for example, but it's small beer compared to the sheer scale of NAMA.

In fact, in terms of the way the SPV works, the investment really functions more like a long-term bond. It's a bet that investors will get their money back with something extra on top, not a punt that could return a fortune.

Irish Independent

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