Chief Executive’s Review

2017 represented a very active year for the NTMA as we issued €17bn in long-term debt at low yields and committed almost €700m in ISIF funding to investments in the domestic economy. The year also saw continued growth in the number and complexity of corporate finance advisory assignments requested of NewERA.

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The NTMA issued €16.2bn of benchmark bonds during 2017, at a weighted average yield of 0.89% and a weighted average maturity of 12.4 years. A number of private placements, including Ireland’s first ever sovereign inflation-linked bond, brought the total long-term issuance to €17bn. While our original stated funding range for the year was €9bn to €13bn, additional issuance was undertaken in order to fund the early repayment of loans from the IMF, Sweden and Denmark. The low interest rate environment that has pertained over the last number of years due to the ECB’s quantitative easing programme has provided major benefits to bond issuers and Ireland has taken advantage of this. Over the 2015-2017 period, the NTMA has issued close to €40bn in new benchmark bond funding at a weighted average yield of just over 1% and a weighted average maturity of almost 14 years.

While our strategic approach of lengthening the maturity of our debt and locking in low borrowing costs affords us significant protection against the possibility of rising interest rates, our debt level remains high in absolute terms at over €200bn as a legacy of the financial crisis. Although our General Government Debt (GGD) to GDP ratio looks positive after falling from 120% at peak to 68% at end-2017, investors now place more emphasis on our absolute debt and other measures. For example, interest costs on the General Government Debt comprised 7.6% of Government revenue in 2017 compared with an EU average of 4.4%.

The investment gains generated by the ISIF - €674m in value since inception in December 2014 - demonstrate a very satisfactory performance in the current low interest rate environment. The ISIF committed €667m to 23 separate investments in 2017 including significant commitments in the areas of housing, connectivity, renewable energy, SMEs, food and agriculture, technology, and life sciences. The ISIF has also been very effective as a catalyst for private sector investment in Ireland. The €3.3bn committed by the ISIF to Irish investments from inception to end-2017 has been augmented by private sector co-investment to bring the total amount committed to Ireland as a result of ISIF activity to €9.1bn.

2017 saw substantial progress on the NDFA’s PrimaryCare Centres and Courts PPPs with a number of facilities becoming operational and the remainder scheduled for completion in 2018. Construction has now commenced on the delayed Dublin Institute of Technology Grangegorman PPP. In addition, the NDFA is working on a bundle of three social housing PPPs with the objective of opening up an additional funding channel for social housing.

Work is also underway to complete delivery of Schools PPP Bundle 5, which will provide 4,870 student places across four sites. This project has been impacted by the liquidation of Carillion plc in January 2018 and the PPP Company and the project funders are currently working through a revised plan to complete the project as expediently as possible.

2017 saw further growth in the number and complexity of corporate finance advisory assignments requested of NewERA in relation to State companies outside its core remit and other projects with a significant corporate finance element. Following an agreement put in place during 2017 with the Department of Transport, Tourism and Sport, NewERA is providing ongoing financial and commercial advice on key State companies in the transport sector. During 2017, NewERA also provided advice in other sectors including a financial review and analysis of An Post’s strategic and funding plan and the Vhi’s strategic and financial plan. In April 2018, An Post was added to the list of State bodies designated within NewERA’s core remit.

The value of the estimated outstanding liability in respect of claims being managed by the SCA grew by €500m from €2.2bn to €2.7bn between end-2016 and end-2017. The value of the estimated outstanding liability is driven by clinical claims, primarily the high cost of settling catastrophic brain-injury infant cases. Clinical claims continue to represent the main focus for the SCA. A number of statutory changes, expected to be commenced in 2018, should be noted here. The introduction of regulations for Pre-Action Protocols should serve to dramatically reduce the timeline between the receipt of and settlement of medical negligence cases and remove the more adversarial elements of the tort system as it applies to such cases. The introduction of Periodic Payment Orders as an alternative to lump sum awards of damages will enable catastrophically injured victims’ needs to be met with more certainty.

A priority issue for the SCA is the resolution of cases arising from the National Cancer Screening Services relating to women who have been diagnosed with cervical cancer, in line with the principles outlined by the Government. The SCA is seeking to expedite the resolution of these cases in a sensitive manner, working co-operatively with the co-defendant laboratories, utilising mediation wherever possible and placing a high priority on treating the people who have made the claims, and their families, with dignity and compassion.

The NTMA has worked closely with the Department of Finance and with Apple on the escrow fund in relation to the alleged Apple State aid recovery process. During 2017, the Minister delegated to the NTMA the conduct of the procurement process to appoint an escrow agent and custodian and investment managers for the escrow fund. The NTMA was also tasked with negotiating the investment policy for the fund with Apple, subject to the approval of the Minister. The collection of the alleged State aid from Apple commenced in May 2018 with the first of a series of phased payments to the escrow fund.

As I have noted previously, our success in achieving our corporate and business goals is wholly dependent on the quality and dedication of our people and it is essential that we can attract, develop and retain high quality employees. Irish workplaces have changed profoundly in recent years and as employers we need to recognise these changes. It is important that we develop a diverse and inclusive working environment that respects difference and values a range of experiences and perspectives in addressing the challenges we face.

In conclusion, I would like to thank all my colleagues for their contribution to the organisation during the past year. Your expertise, commitment and drive are helping to produce significant long-term value for the State. I would also like to take this opportunity to thank the Chairperson, Board and our committee members for the support, challenge and counsel they have provided to us over the past twelve months.

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Conor O’Kelly
Chief Executive

29 May 2018