Saturday 16 December 2017

ESB pays price of market return as loan costs soar

ESB logo
ESB logo
Donal O'Donovan

Donal O'Donovan

THE ESB's interest bill increased by 50pc last year to €45m, the Irish Independent has learnt.

Borrowing costs shot up after the semi-state became one of the first Irish businesses back to the markets last year, borrowing €1.1bn in two bond market deals in September and November 2012.

Accounts for ESB Finance Limited, a subsidiary company set up solely to execute large- scale borrowing deals, show "finance expense" of €45.922m in the year to the end of December 2012.

The figure is made up of interest paid on bonds and corporate bank loans by the ESB.

The total cost of borrowing in 2012 compared to an interest bill of €30.15m in 2011 represents an increase of around 50pc. ESB Finance passes the money it raises on the markets to the ESB Group in the form of inter-company loans.

The state-owned power group ultimately covers the bill for interest, and has guaranteed the debts.

Last year's hike in borrowing costs shows that access to international finance has come at a cost for the ESB.

Analysts say that cost was driven in part by the wider effects of the EU/IMF bailout, which forced all Irish borrowers to pay higher rates to borrow on the markets until the second half of 2013.

Last year, the ESB agreed to pay an annual interest rate of 6.25pc to borrow €600m of five-year bonds in its first bond deal since the EU/IMF bailout.

That relatively high price included an extra risk premium that international lenders demanded because of the perception that the Irish economy was still very fragile.

The price of new debt has fallen sharply for the company since then.

The ESB's borrowing costs for 2013 will be dramatically higher again, because interest on last year's bonds will be charged for the full 12 month period.

This month, the ESB raised a new €300m 10-year bond and investors demanded a coupon – or fixed interest rate – of just 3.49pc.

In October 2013, the Moody's rating agency changed its outlook for the ESB from neutral to stable, but noted that its financial strength had "deteriorated" below "historically robust levels" since it borrowed to finance the 2010 acquisition of Northern Ireland Electricity.

Irish Independent

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