Sunday 24 June 2018

Clocks ticks as officials bid to find solution on €3.1bn deal

Moody's warns agreement won't ease concerns on funding outlook

Laura Noonan

Laura Noonan

OFFICIALS are racing against the clock to solve "technical difficulties" with the Government's plan to side-step a €3.1bn payment due to the former Anglo Irish Bank next Saturday.



"They will be working at it over the weekend," Finance Minister Michael Noonan said yesterday. "It is not medium term. It's something that has to be done fairly quickly."

The efforts to sign a deal come as rating agency Moody's warned that it will make little difference in helping the country's funding outlook and planned re-entry to bond market next year.

Moody's analyst Dietmar Hornung told Dow Jones newswire that a delay in repaying the €3.1bn cash installment will help lessen funding pressures but won't lift concerns about the country's solvency problems.

Debt burden

A deal would put Ireland "in a slightly better position" but not significantly lower the debt burden, Mr Hornung added.

Mr Noonan admitted that there were "some technical difficulties" outstanding but said he was "hopeful" of getting a result "along the lines" of what he outlined to the Dail in recent days.

Sources said the agreement between the Department of Finance and the European Central Bank needs to be reached by Monday or Tuesday because it would take several days to implement the proposal.

The Government wants to "settle" the €3.1bn payment to the newly renamed IBRC with a sovereign bond instead of giving the bank hard cash.

It will take several days to construct the new bond and get it through a clearing house. Anglo Irish successor IBRC, which is being kept abreast of developments, will also need time to consider the new structure and decide whether to accept it.

The final deal is unlikely to see IBRC given a bond directly by the Government, the Irish Independent understands. Instead, IBRC will be given cash, which will be immediately used to buy a newly created bond.

Transaction

Because the bank will be technically "buying" a bond from the Government, the transaction will have to be done at current market prices for Irish sovereign debt.

IBRC could, in theory, sell on the bond for €3.1bn -- making the transaction exactly equivalent to the bank getting cash directly from the Government.

If the deal is done on this basis, then it is unlikely to have any implications for IBRC's wider finances. The bank now holds a €30bn IOU from the State, which falls to €27bn after next week's payment.

If next week's payment was not of equivalent value to the agreed €3.1bn cash, the bank could be forced to revalue the remaining €27bn of IOUs, something that would leave a hole in IBRC's capital.

Mr Noonan yesterday said that the "bigger picture" was trying to "get an easier way" of paying off the remaining €27bn of IOUs. That work could take several more weeks.

Irish Independent

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