EU delays raising €3bn loan for Ireland

THE EU’s funding facility put off raising €3 billion for Ireland because the cost had escalated following Greece’s referendum announcement.

While the fund’s triple-A rating was confirmed yesterday on conference call with investors by the Luxembourg-based vehicle, some expressed fears on what this meant for the facility.

Analysts criticised the European Financial Stability Facility (EFSF) for not raising the money sooner, when markets were more relaxed about the euro debt crisis.

The bond issue is not expected to go ahead for the next few days, hoping that the G20 meeting starting today in Cannes will reduce the volatility.

EFSF spokesperson Cristof Roche said they put off the fund raising because of the market conditions. “We may be able to issue in the near future but this will depend on market conditions,” he added.

The Government said they had sufficient cash without the loan. “At end October, the Government had €11.6bn of cash reserves, which is a very healthy buffer of cash for the running of state services, including the redemption of the €4.39bn Government bond on 11 November,” said Department of Finance spokesperson Eoin Dorgan.

While the previous EFSF loan of €3.3bn handed over to Ireland on February 1 cost 2.89%, the country was due to pay close to 6% for it. However, EU leaders agreed to abolish the punitive margin, saving the country considerable sums over the lifetime of the loans.

It was hoped that future long-term money would cost no more than 3.3%, but yesterday yields moved up with mid-swap yields by 50-60 basis points above the last number of weeks, said Dermot O’Leary of Goodbody’s.

“Ireland would be paying a higher rate than a month ago and there was also a risk because of Greece that it would be unsuccessful,” he said, adding that any time over the past few weeks would have been optimal timing to raise the funds. when existing 10-year bonds were trading at 2.6%

This compared to January, when the EFSF placed its inaugural five-year bond for €5bn for Ireland and received a record-breaking order book of €44.5bn from more than 500 investors, with particularly strong demand from Asia.

EU leaders decided last Wednesday to increase the firepower of the rescue fund to €1 trillion but, with the details still to be worked out, this has also caused potential investors to sit it out until there is more clarity on the two new mechanisms to achieve this kind of leveraging. As a result, EFSF debt has not been performing as well as similar funds this week.

The volatility was also evident in the other programme country, Portugal, when short-term borrowing costs reached record levels in an auction yesterday.