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NTMA sets out “road map” for re-engagement with bond markets

19 July 2012 – The Chief Executive of the National Treasury Management Agency, John Corrigan, today set out a roadmap for Ireland’s phased re-entry to the international bond markets over the coming 18 months. Mr. Corrigan was speaking at the annual Midyear Business Update hosted by the NTMA where he also published the NTMA Annual Report 2011. The Minister for Finance, Mr. Michael Noonan TD, attended the briefing.

In addition to the ongoing intensive engagement between the Agency and international investors, the NTMA set out three key objectives for the rest of this year and into early 2013:

  1. to hold 3-4 auctions of short-term Treasury Bills similar to the one successfully concluded two weeks ago between now and the end of the year.
  2. to diversify its sources of funding through the first Irish sovereign issuance of (1) amortising bonds and (2) inflation-linked bonds.
  3. to issue its first conventional bond since September 2010.

Mr. Corrigan said: “For some time now the NTMA’s plan has been to carefully and deliberately re-engage with the debt markets in a phased manner. That process is now underway and will continue over the coming months as we increase the size and maturity of Treasury Bill issuance and introduce two new types of funding instrument specifically tailored to the needs of the domestic pensions industry. Market conditions permitting, the NTMA also plans to issue a conventional medium to long-term bond.”

Mr Corrigan reiterated that sustainable re-entry to the international bond markets remains dependent on several factors. He identified continued success in honouring the commitments made with the Troika, in particular adherence to budgetary targets, and a resolution of the wider eurozone sovereign debt and banking issues as critical. A significant deal on bank debt would, of course, greatly enhance the prospects of returning to the markets in a timely and sustainable manner.

Mr. Corrigan also provided additional information on the Treasury Bill auction of 5 July in light of speculation about the geographical uptake of the auction. The Agency’s network of primary dealers has indicated that approximately 80% of the Bills auctioned were acquired internationally.

Speaking on the Agency generally, Mr Corrigan said the NTMA was working with the Department of Finance on legislative proposals for presentation to Government to put NewERA on a statutory basis and to refocus the National Pensions Reserve Fund (NPRF) on the domestic economy which will enable investment in NewERA projects and in areas such as infrastructure, including PPPs, financing for SMEs and venture capital.

“The unifying theme behind these proposals is the making of investments on a fully commercial basis that will generate economic activity and employment. The aim is to use NPRF assets both directly and as a catalyst for attracting additional third-party capital and also to leverage the commercial expertise and networks available to the NTMA across its NewERA, NPRF and National Development Finance Agency (NDFA) functions to drive much needed investment in the domestic economy.”

Mr Corrigan said these measures would support the €2¼ billion stimulus package announced by Government earlier in the week. He noted that NewERA was already advising Government on the valuation of State assets and was managing the disposal of Bord Gáis Energy on behalf of the Government. The NPRF had made a €250 million commitment to the new Irish Infrastructure Fund and agreed a collaborative relationship with Silicon Valley Bank involving the deployment of US$100 million in lending commitments in Ireland. The NDFA was instrumental in securing the recently announced €100 million loan from the EIB for school capital projects and would also play a key role in the delivery of the stimulus package through its financial advisory and procurement roles.

Annual Report 2011

The 2011 Annual Report details the Agency’s activities and progress in a number of different areas including:

Funding and Debt Management

The Report details the extensive investor engagement programme undertaken by the NTMA through 2011 and into the current year with an extensive round of meetings and presentations to institutional investors in Ireland, the UK, continental Europe, North America, Asia and the Middle East. The aim of these presentations was to keep investors fully informed of the significant progress made by Ireland in consolidating the public finances, recapitalising and restructuring the banks, and regaining competitiveness. This investor relations work is both a source of market intelligence and an essential part of the preparations for returning to the bond markets before the EU/IMF programme concludes at the end of 2013.

The Report also details the disbursements in 2011 and 2012 under the EU/IMF programme. Liabilities under the EU/IMF programme to 31 May 2012 amounted to €49.58 billion in nominal terms. Loans from EU sources amounted to €32.74 billion and IMF loans amounted to €16.84 billion. The estimated all-in euro equivalent cost of loans received under the EU/IMF programme was 3.46 per cent at 31 May 2012. The programme covers Ireland’s funding needs until the end of 2013.

National Pensions Reserve Fund (NPRF)

The NPRF Discretionary Portfolio (the Fund excluding the public policy investments in Bank of Ireland and Allied Irish Banks made at the direction of the Minister for Finance) earned a return of 2.1 per cent in 2011 despite declines in most global equity markets. This positive performance was due largely to the adoption in midyear of a significant tactical underweight position in equities and the purchase of two-year equity index put options which shielded much of the Fund’s quoted equity holding from adverse price movements.

The Discretionary Portfolio earned a return of 3.1 per cent for the first six months of 2012. From the Fund’s inception in 2001 to end June 2012, the Discretionary Portfolio has delivered an annualised return of 3.5 per cent per annum compared with 1.6 per cent per annum for the average Irish managed pension fund.

At end June 2012 the Discretionary Portfolio was valued at €5.8 billion and the Directed Portfolio (comprising the investments in Bank of Ireland and Allied Irish Banks) was valued at €8.1 billion.

New Economy and Recovery Authority (NewERA)

In September 2011 the Government announced the establishment of NewERA within the NTMA. The core roles of NewERA will centre around the oversight of the commercial State sector in Ireland including, where requested, advising on the disposal or restructuring of State assets and ensuring that Government plans for investment in energy, broadband, forestry and water are implemented. It will have a wide corporate governance role and will act as a Shareholder Executive managing State assets. This role will also incorporate the review of commercial semi-state companies’ corporate plans (including capital expenditure) individually and from a portfolio perspective.

Among NewERA’s first tasks was to provide advice to Government on indicative valuations to be placed on selected assets, the possible disposal methods, where applicable, and the likely timeframe for any such disposal. Following the Government announcement in February 2012 in relation to the disposal of State assets, work is now underway on the specific regulatory, legislative, corporate governance and financial measures which need to be taken to allow the asset disposal programme to proceed.

State Claims Agency (SCA)

The SCA achieved significant savings in the management of clinical claims in 2011. An independent actuarial assessment projected that €106 million would be required to meet the cost of the Clinical Indemnity Scheme for the year. The actual cost in respect of the scheme, including successful recoveries from third parties, was €81 million – a saving of €25 million.

The total number of claims under the SCA’s active management at end 2011 rose by 25 per cent from a year earlier to 5,306, principally as the result of the delegation by Government of the management of claims against new authorities and additional classes of claims.

The Government further extended the SCA’s remit in April 2012 with the delegation of management of claims alleging personal injury in respect of the medicinal products Thalidomide and Nimesulide.

National Development Finance Agency (NDFA)

During the second half of 2011 the NDFA completed its second bundle of schools, providing accommodation for approximately 4,700 students at six schools in Cork, Limerick, Kildare, Wicklow and Meath.

The NDFA is currently finalising the procurement stage of the construction of a third bundle of schools and expects the project to reach financial close and commence construction in Q4 2012. When completed, the eight schools in the third bundle will provide accommodation for approximately 5,700 students in Donegal, Galway, Leitrim, Limerick, Waterford, Westmeath and Wexford.

The NDFA is also the financial advisor to the National Roads Authority on the N11/Newlands Cross PPP project. This project is expected to reach financial close in late 2012.

Banking System Functions

The recapitalisation and restructuring of the banking system constituted the primary focus of the work of the NTMA Banking Unit in 2011.

Burden sharing measures under the 2011 recapitalisation programme delivered €5.6 billion in capital that would otherwise have come from Exchequer. During 2011 the Banking Unit, working with the Department of Finance, also successfully negotiated the sale to private investors of €1.0 billion (net of fees) of ordinary shares in Bank of Ireland that had been purchased by the NPRF via a rights issue as part of the recapitalisation of the bank.

The Banking Unit was seconded to the Department of Finance from 5 August 2011.

The National Asset Management Agency (NAMA)

The NTMA provides NAMA with staff and business and support services including HR, IT, market risk, communications and the execution and processing of treasury and hedging transactions. NAMA reimburses the NTMA the costs of staff assigned to NAMA and the costs of business and support services. Of the 473 staff employed by the NTMA at end May 2012, 214 were assigned to NAMA.

Up to end May 2012, NAMA had approved asset sales valued at €9.2 billion. NAMA has also approved advances of €1.3 billion as working and development capital to debtors to preserve asset values and enable the completion of projects.

NAMA will publish its annual report separately.