Business Irish

Sunday 19 November 2017

Investors swamp Bord Gais with offers in €500m bond auction

Not all Bord Gais customers will benefit from lower prices scheduled to come into effect this October
Not all Bord Gais customers will benefit from lower prices scheduled to come into effect this October
Donal O'Donovan

Donal O'Donovan

Investors in the bond markets offered to lend €6.5bn to Bord Gais in less than an hour, even though it only wanted to borrow €500m.

The semi-state company will pay an interest rate of 3.62pc for the new borrowings compared to 5.75pc in interest it is currently paying on bonds issued in 2009, thanks to the strength of the demand.

The 2009 bond deal was a first for Bord Gais, priced before the worst of the European debt crisis and long before Ireland was forced out of the debt markets for almost two years.

Now the firm is the fourth Irish borrower in just eight days to be inundated with offers of cash from the bond markets. Yesterday's bond auction success follows blowout deals last week by the ESB, Bank of Ireland and by the Government. All four witnessed massive appetite among international investors for new Irish debt.

It is all dramatic evidence that the bond market has had a spectacular change of heart about the risks associated with investing in Ireland.

Yesterday, bankers working for Bord Gais are understood to have closed its bond auction hours ahead of schedule after they were overwhelmed with demand from investors across Europe. Books on the new deal opened at 8.30am and closed at 9.30am instead of the planned lunchtime deadline. By then, 13 times more money than Bord Gais wanted to borrow had been offered to the company.

The demand came mostly from European money managers, with the UK and Nordic countries as well as France, Germany and Switzerland all represented. The strong demand allowed the company to slash its borrowing costs on the new deal, revising down price guidance offered to investors even as the offers piled in yesterday.

The interest rate of 3.62pc on the new borrowings compares to interest rates of 5.75pc charged at its last bond auction in 2009.

The company plans to use the cash raised yesterday to "buy back" some of the €550m of bonds issued in 2009 that are due to be repaid in 2014.

Bord Gais was yesterday offering bondholders 107pc of face value, seven cents in the euro on top of what they are owed, to redeem the debt early.

A formal offer to redeem the bonds was made yesterday and is expected to take five days.

The premium was offered to buy back the bonds because investors are under no obligation to cash out of their investment early. Indeed, Bord Gais could struggle to prise the outstanding bonds away from investors.

That's because any money managers who sells back the Bord Gais bond paying 5.75pc in interest could struggle to find an equally good alternative investment, one trader noted.

Yesterday's bond deal brings to around €1bn the total amount of debt refinanced by Bord Gais this year, according to Michael O'Sullivan, the company's chief financial officer.

The balance of the refinancing has come from bank loans with the European Investment Bank (EIB) and domestic Irish lenders.

It means the company now has no need to raise new debt until 2016, Mr O'Sullivan said.

Analysis: Why Irish bonds are the hottest ticket in town, Page 7

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