Wednesday 13 December 2017

Sovereign debt crisis may force more Irish companies offshore

Dan White

Dan White

CRH's success in getting a $750m (€562m) bond issue away this week was a rare piece of good news amid the current gloom. However, CRH's success notwithstanding, there are clear indications that many large Irish companies are finding it increasingly difficult to raise funds due to the deepening Irish sovereign debt crisis.

On Tuesday, CRH announced that it had raised $750m from an issue of five and 10-year bonds. It is paying a 5.75 per cent interest rate on $400m of 10-year bonds and 4.125 per cent on $350m of five-year bonds. At those sort of interest rates, it is clear the markets rate CRH a better credit risk than the Irish Government.

That's the good news. The bad news is that many other large Irish companies are locked out of corporate bond markets as investors shun anything associated with Ireland in the wake of the EU/IMF bailout and a widely-expected sovereign debt default.

So why was CRH able to sidestep negative market sentiment toward anything Irish? It helps that 46 per cent of CRH's sales are in the US and that it earns 47 per cent of its profits on the other side of the Atlantic. The bonds were issued, not by CRH itself but by a subsidiary company CRH America. Is it unreasonable to assume that, if in the unlikely event that something goes wrong, bondholders would have recourse to CRH's US assets?

But what about Irish companies that don't have extensive US operations? How can they tap the bond markets if, as seems likely, the Irish sovereign debt crisis remains unresolved for months or even years to come?

One likely response is that Irish companies will either re-register abroad, thus shedding the 'stigma' of being Irish, and/or switch the main listing away from the Dublin market. Indeed there are signs of this already happening with Aryzta, formerly IAWS, now a Swiss-registered company with its primary listing in Zurich; while Essenta, the rebranded Greencore, will be listed in London. If the Irish sovereign debt crisis remains unresolved, these two companies will, sooner rather than later, be joined by many others.

Sunday Independent

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