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Government set for €4bn bond deal today as refinancing of costly IMF bailout loans kicks off


Finance Minister Michael Noonan (right) with Minister Brendan Howlin.  The Government will borrow up to €4bn today

Finance Minister Michael Noonan (right) with Minister Brendan Howlin. The Government will borrow up to €4bn today

Finance Minister Michael Noonan (right) with Minister Brendan Howlin. The Government will borrow up to €4bn today

THE Government will borrow up to €4bn today in the first of what will be a series of bond deals aimed at repaying costly IMF bailout loans early, the Irish Independent has learned.

Analyst Ryan McGrath of Cantor Fitzgerald said he expects the yield - or effective rate of interest on the new bonds - to be 2.5pc.

That is half the interest rate charged by the IMF for its share of the EU/IMF bailout.

The National Treasury Management Agency (NTMA), which manages the national debt, said yesterday that it has hired CITI, Danske Bank, Davy, Morgan Stanley, Nomura and Royal Bank of Scotland as joint lead managers to arrange a 15-year bond deal.

It will be the longest term debt raised by the State on the private money markets since 2009.

The NTMA declined to say how much will be raised, when the deal will happen, or what how proceeds of the "benchmark" bond deal will be used.

However, the Irish Independent understands that between €3bn and €4bn will be raised as early as today and that the money being borrowed will go towards repaying IMF debt early.

The new bonds are in addition to €8bn the NTMA originally said it would raise on the markets in 2014.

The Minister for Finance, Michael Noonan, previously announced that he wants to raise money on the markets over the next three years to repay IMF loans early.

That requires permission from other bailout lenders - who otherwise have a right to be repaid at the same time as the IMF.

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Following negotiations in September that ratification process is close to completion - however Sweden has still to formally agree to the Irish request.

That is expected to happen on November 14.

Until it does, however, the NTMA cannot move ahead with the process of repaying the IMF, though it can raise cash that will eventually be used for the purpose.

All going to plan, the Government plans to pay back €18.3bn of IMF loans in three years at €6.1bn a time.

The first payment, to be made later this year, is likely to be made up of €4bn raised on the bond market and €2bn already sitting in State coffers, Ryan McGrath said.

He expects strong investor appetite for today's deal - with around €14bn likely to be offered to the NTMA, though no more than €4bn will actually be accepted today.

The Department of Finance has estimated that €1.5bn will be saved by refinancing the IMF loans.

Bringing down the cost of debt servicing has become a priority for the State. The interest bill for the national debt topped €8bn last year - around €1.5bn of which was linked to the cost of the banking crisis.

That national debt could fall by 5pc, based on "fairly conservative assumptions", by selling off the Government's stakes in AIB, Permanent TSB and Bank of Ireland, according to analysis by Cantor Fitzgerald. It could mean a 90pc-or-lower debt to gross domestic product ratio by late 2018, from a peak of 123pc last year.

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