Saturday 21 April 2018

Lower €200bn State debt with bank sell-off cash, says NTMA

Conor O’Kelly, CEO of the NTMA, at yesterday’s mid-year update. Photo: Chris Bellew/Fennell
Conor O’Kelly, CEO of the NTMA, at yesterday’s mid-year update. Photo: Chris Bellew/Fennell

Gretchen Friemann

The National Treasury Management Agency has said it would welcome a faster sell-down in the State's bank holdings as it prepares to repay close to €40bn.

At a mid-year update yesterday, NTMA CEO Conor O'Kelly warned that Ireland remained among the most indebted nations in the eurozone, despite robust growth.

Mr O'Kelly stressed that the windfall from future share sell-downs offered a unique opportunity to make a "substantial" inroad in the Government's outstanding liabilities, which stand at over €200bn.

Mr O'Kelly said he would welcome an acceleration in the State's sell-down of the banks, including further exits in the recently listed AIB.

He emphasised: "You don't get too many opportunities to pay down debt, that doesn't really happen" and pointed out that in the absence of money from these asset sales, the restoration of Ireland's debt sustainability would depend on economic growth. Mr O'Kelly's comments follow mounting political agitation for the proceeds of AIB's recent flotation to be diverted into other areas, including health and education.

Yesterday, Taoiseach Leo Varadkar pledged to ramp up spending on much-needed infrastructure, in a move that will reduce 'rainy-day' funds.

However, Finance Minister Paschal Donohoe has repeatedly insisted that the money from the bank sell-downs will be redeployed into debt repayments.

As the NTMA launched its annual report, it highlighted that the annual cost of servicing Ireland's debt will fall to less than €6bn by 2020, despite intensifying expectations that the European Central Bank is poised to phase out its asset-purchasing programme, that has helped drive interest rates to record lows.

Mr O'Kelly said he had no view on when the ECB will start to taper its policy of quantitative easing, but added that the agency was in the "permanent contingency business" and strives to constantly "think ahead".

According to Davy's global strategist, Donal O'Mahony, this approach is evident in the NTMA's ballooning cash reserves, which hit €21.6bn at the end of June, compared to close to €8bn at the end of 2016.

He said the agency was focusing its attention on the hefty repayments due in 2019 and 2020 and pointed out that the balanced budget left the State with a relatively small repayment schedule over the next two years: €6.6bn in October and then about €8bn in 2018.

But while the NTMA stressed that Ireland has "disproportionately benefited" from quantitative easing, its debt remains high in "absolute terms". Debt per person works out at an average of €42,000, compared to an EU average of €24,000.

As Mr O'Kelly noted, at the nadir of the economic crisis, Ireland's two-year bonds attracted double-digit rates. They are now in negative territory.

This benign interest-rate environment, and the economic recovery, have helped ease the debt burden.

In its interim report, the agency highlighted that refinancing obligations of €70bn by 2020 had been cut to less than €40bn, with its cash reserves bolstered by bond sales, the purchase and cancellation of notes related to Anglo Irish Bank's bailout, along with a switch, to the tune of €3bn, of investors holding short-dated paper into long-term notes.

Last month's flotation of AIB also added an additional €3.4bn to the cash pile.

The NTMA has sold €9.35bn of bonds so far this year and that figure will rise to over €10bn at the end of this week as the agency oversees another dual-track auction of sovereign debt.

Irish Independent

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