Sunday 21 January 2018

BoI raises €750m from bond sale, but price is steep

Donal O'Donovan

Donal O'Donovan

Bank of Ireland borrowed €750m from international investors yesterday by issuing a new public bond. The deal is the first sale of a bond by an Irish bank in the public market for six months.

Pricing on the new deal is extremely steep. Bank of Ireland is paying a fixed coupon of 5.875pc for the two-and-a-half year bond. That compares to the 3pc APR the bank is charging on new mortgages for customers switching from other providers.

The new debt is government guaranteed under the "eligible liabilities scheme". The scheme is a more selective update of the government guarantee.

The amount raised is 50pc higher than a €500m minimum the bank said it was looking to place with investors.

Analysts said the NTMA's decision to cancel the sale of government bonds in October and November may have left a gap in the market for investors who are comfortable with Ireland and keen to take advantage of the prices being offered.

The new deal takes the total amount of term-debt raised by Bank of Ireland in the past six months to €1.1bn. Bank of Ireland borrowed 425m Swiss francs (€311m) in July and £300m in October in the private placement market, a less public debt market with fewer investors.

Bank of Ireland may have suffered by pricing the deal on a day when the spread of Irish sovereign debt pushed back past the psychologically important 6pc mark.

Even so, the bond was met by good interest. Orders were high enough to sell more than €1bn of paper, though not necessarily at the same interest rate.

Three-quarters of the 60 investors that bought the bonds are based outside Ireland.

The bank and the state hope the fact that the market for Irish bonds has been reopened will ultimately help bring down the cost of debt. The size and liquidity of the public bond market tends to drive down pricing for regular issuers over time -- if the risk perception is good.

The new €750m will trade in the secondary market, where the rise and fall of yield is more visible than in the private placement market. If yields fall, Bank of Ireland should be able to take advantage of that information to drive down the price it pays for its next bond.

BNP Paribas, Deutsche Bank and Nomura managed the sale of the bonds.

Irish Independent

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