Friday 24 November 2017

EU's rescue fund raises €3bn from bond markets for bailout

EFSF cash will be handed to Government this week to fund next tranche of aid

Siobhan Creaton

Europe's rescue fund has raised €3bn in the bond markets to fund the next tranche of Ireland's bailout. The money will be handed over to the Government on Thursday.

The European Financial Stability Facility (EFSF) was forced to pay slightly more to lenders to make the funds available because of the eurozone's worsening debt crisis. But the cost to Ireland of borrowing this money will not be significantly more expensive, according to experts.

Donal O'Mahony, of Davy Stockbrokers, said the next tranche of bailout funds would not end up being more costly for the country.

"This is the first 10-year funding the EFSF has raised for Ireland at 3.5pc. This is in line with the price of raising bailout funds for Portugal in June," he said. It raised money at 3.4pc then, just below the cost of the new funds.

The exchequer finances were plunged into crisis last week after the EFSF delayed raising the new money pledged as part of the bailout after lenders demanded a higher interest rate on foot of the latest Greek crisis.


Fund officials said Ireland would suffer if it had gone ahead then, as it would have had to pass on the additional costs. This would mean Ireland would be forced to pay a higher rate of interest on this money.

Yesterday, the Luxembourg-based fund said the deal attracted more than €3bn worth of orders and met with "solid demand".

EFSF chief executive Klaus Regling said he was pleased the fund had again attracted investors from all over the world, with a satisfactory overall amount despite a "difficult market environment".

But the market conditions have become more difficult for the EFSF, with one analyst saying this deal is "a complete level-changer, a completely new world" for the fund. "This will be the new reference point", for any future 10-year deal, David Schnautz, of Commerzbank, said.

Bond issues

The EFSF, which was established in June 2010, previously raised €13bn from three bond issues this year but it is struggling as the debt crisis escalates.

Its existing loan notes have underperformed European benchmark debt.

"The EFSF is paying the price for being a relatively new issuer, and for the increasing concerns about a sustainable solution for the peripheral economies," Ivan Comerma, of Banc Internacional d'Andorra, said.

There is still no clarity about what a new EFSF mechanism will look like, which is a concern for lenders who are being asked to provide more money.

"You're being asked to invest in something that could change shape relatively radically," Richard McGuire at Rabobank International in London said. (Additional reporting, Bloomberg)

Irish Independent

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