EU bond issue for bailout nine times over-subscribed

DEMAND for EU bonds to help finance Ireland’s bailout were over-subscribed nine times yesterday but the country is expected to be charged more than 6% in interest for the five-year loan.

The European Financial Stability Facility (EFSF), which was raising the money on behalf of the eurozone member states, described the interest as “exceptionally strong” in what was its first step into the markets.

It was offering bonds worth €5 billion for Ireland and attracted the interest of more than 500 investors with orders worth a total of €44.5bn.

The demand from Asian investors was particularly strong, with 20% being bought by the Central Bank of Japan.

The EFSF said its borrowing costs will be in the order of 2.89%.

But a once-off service fee and a 3% margin will be added to this.

The chief executive of the EFSF, Klaus Regling told a press conference in Frankfurt yesterday evening that the interest rate would be in the order of 6%, or even higher.

This compares with the 5.51% rate Ireland has to pay for the €5bn the European Commission raised as part of its contribution to the Irish bailout three weeks ago.

The interest rate was 2.59% and the margin 2.925%.

A source suggested that the higher rates offered by the EFSF was to ensure there was adequate interest in its inaugural bond.

The EFSF five-year bond of €5bn is made up of €3.3bn, which Ireland will receive on February 1, while the balance is a cash reserve and loan-specific cash buffer the facility needs to maintain its triple A rating.

The EFSF’s structure requires both the principal and interest to be covered by guarantees and the sum raised yesterday covers the margin rate and a one-off service fee.

This forms the second tranche of the EU loan with the first €5bn raised on the markets by the European Commission on January 5, attracting nearly four times the offer.

The EFSF will lend Ireland €17.7bn in total this year and next and will hold the second of its three bond sales this year within the next five months.

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