Annual Report 2013 and Midyear 2014 Update

Annual Report 2013 and Midyear 2014 Update

28 July 2014

  • Normalised market access achieved with syndication followed by regular auctions
  • €7bn raised from bond markets so far in 2014, almost 90% of indicative funding target
  • €1.25bn committed under Ireland Strategic Investment Fund initiative (NPRF)
  • Schools, DIT campus, Health and Justice infrastructure projects all underway (NDFA)
  • Advised on the €1.1bn sale of BGE energy business (NewERA)
  • €5.6m savings achieved on tribunal-related legal fee claims (State Claims Agency)
  • Strategic Banking Corporation of Ireland to be established in the Autumn

28 July 2014 - The National Treasury Management Agency (NTMA) today published its Annual Report for 2013 (1.97 MB, PDF format) and provided an update on activities across its range of business functions over the first half of 2014.

NTMA Chief Executive John Corrigan said that Ireland, following its exit from the EU/IMF programme without a precautionary credit line late last year, had confirmed its full return to normal market funding by syndicating a new 10-year benchmark bond in January and subsequently completing four successful bond auctions beginning in March. The NTMA has raised €7 billion in the bond markets so far this year which is almost 90 percent of its indicative funding target of €8 billion for the full year.

"We have moved from the opportunistic and syndicated issuance which characterised our initial return to the markets to a series of scheduled bond auctions, marking the final step in achieving normal bond market access," said Mr Corrigan.

"Having restored full market market access, our attention has now turned to the next significant maturity, the 2016 bond, which was reduced to €8 billion (from just over €10 billion) by the NTMA's buyback and switch offer earlier this month. We are targeting further "top-slicing"1 of the 2016 bond with the aim of smoothing the debt maturity profile."

Mr Corrigan highlighted the significance of the NTMA Amendment Bill. In addition to putting a number of new NTMA functions (the Ireland Strategic Investment Fund, NewERA, and the Legal Costs Unit) on a statutory basis the legislation will, based on proposals put forward by the NTMA, replace the various boards and committees currently in place with a single overarching board to oversee all of its functions. NAMA will continue to have its own separate governance structure.

"This is very important in terms of the role the NTMA will play in post-crisis Ireland," said Mr Corrigan. "Across the NTMA's functions there is an implicit "invest in Ireland" objective and this new governance structure will allow the NTMA to work in a more integrated manner and take a strategic view across all of its different mandates towards that objective."

Mr Corrigan said he expected that the move to the new structure would be completed in the Autumn. This would take place in tandem with the establishment of the Strategic Banking Corporation of Ireland - a new company, set up to source low cost long-term finance for SMEs - which the NTMA would staff and provide with business and support systems and services.

Full return to the bond markets

In early January 2014 the NTMA raised €3.75 billion through the sale by syndication of a new 10 year benchmark Treasury Bond maturing in March 2024, the first time funds had been raised in the bond markets since the end of the EU/IMF programme. The funds were raised at a yield of 3.54 per cent.

In March 2014 the NTMA restarted its bond auction programme, selling €1 billion by auction in March (2.97 per cent yield) and April (2.92 per cent), followed by a further €750 million in May (2.73 per cent) and €500 million in July (2.32 per cent). The new benchmark 2024 Treasury Bond was offered in each auction.

Auctions of short-term Treasury Bills, having resumed in July 2012, continued throughout 2013 and into this year with three auctions of €500 million each to date in 2014.

The positive momentum behind Irish bond yields in 2013 has been sustained into 2014, most notably following the issuance of the new 10-year bond and Moody's decision to upgrade Irish Government bonds to investment grade in January. 10-year yields are currently around 2.3 per cent.

Ireland regained investment-grade status with all of the main rating agencies following Moody's upgrade in January, which was followed by a further two-notch upgrade in May. Ireland received an A rating for the first time since returning to the bond markets when Standard & Poor's upgraded it to A- (from BBB+) with a positive outlook in June.

Investing in Ireland

The National Pensions Reserve Fund has committed €1,252 million to investments that will come under the Ireland Strategic Investment Fund initiative (ISIF) in areas such as infrastructure (roads, schools, water), venture capital and long-term financing for SMEs. These include a $50 million commitment to the $100 million China Ireland Technology Growth Capital Fund, a joint venture with China Investment Corporation that was announced in January 2014.

At end June 2014, the Fund and its managers had made 73 investments in 60 Irish companies2, mostly through its venture capital and SME funds. Further investment proposals are at various stages of review or due diligence with a number of these expected to lead to investments in the coming months. The NTMA held a market engagement event in Dublin Castle in March to help develop a pipeline of investment opportunities for the new ISIF.

The Discretionary Portfolio (the Fund excluding public policy investments in Allied Irish Banks and Bank of Ireland) earned a return of 6.4 per cent in 2013 and 2.9 per cent in the first six months of 2014. In light of the Government's stated intention to refocus the NPRF's investment towards Ireland, since mid-2011 the Fund has been focused on capital protection - via the purchase of options and a reduced exposure to equities - while maintaining its capacity to participate in gains if markets perform well. From the Fund's inception in 2001 to end June 2014, it has delivered an annualised performance of 4 per cent.

At end-June 2014 the Fund's total value stood at €20.1 billion. The Discretionary Portfolio was valued at €7 billion and the Directed Portfolio was valued at €13.1 billion.

Infrastructure project delivery

The National Development Finance Agency (NDFA), which operates through the NTMA, is financial advisor and/or the procuring authority on a range of infrastructure Public Private Partnership (PPP) projects that got underway or were completed in the first half of 2014.

Schools Bundle 3 - providing a total of 5,700 school places at eight schools Donegal, Galway, Leitrim, Limerick, Westmeath and Wexford - was completed on schedule in April 2014.

The NDFA is the financial advisor on all €1.4 billion of road and non-road PPP projects in the Government's Infrastructure Stimulus Programme. In April 2014 the first project launched under the programme - the N17/18 road PPP (a 57-kilometre stretch of motorway linking Gort and Tuam in Galway) - reached financial close and construction works commenced. This project, the largest in the stimulus programme, is the first Irish PPP to include institutional investor debt funding since the financial crisis.

The NDFA has a dual role - as both financial advisor and procuring authority - in relation to the Programme's non-road elements: the Grangegorman DIT campus; two bundles of schools; primary healthcare centres and seven regional courthouses. The competitions for all these projects are now underway. The preferred tenderer has been selected for Schools Bundle 4 and candidates have been shortlisted for the Schools Bundle 5, Grangegorman and Primary Care Centre projects.

Separately the NDFA is delivering 15 non-PPP school projects with a combined value of c.€80 million on behalf of the Department of Education & Skills.

Advising on State assets

Through its NewERA Unit, the NTMA provided advice and project management services to the Government in relation to the sale by BGE (now Ervia) of its energy business to a consortium comprising Centrica plc, Brookfield Renewable Energy Partners LP and iCON Infrastructure for an enterprise value of up to €1.1 billion. The sale completed on 30 June 2014.

NewERA has developed, in conjunction with the relevant Government Departments, a Shareholder Expectations Framework intended to provide clarity and guidance for each of the commercial State entities within its remit in relation to the Government's strategic priorities, policy objectives and financial performance and reporting requirements. Shareholder Expectations letters based on this Framework have been issued by the respective Ministers to ESB, EirGrid, Bord na Mona and Coillte and it is expected that a letter will be issued to Ervia later this year.

NewERA also provided advice on a revised ESB dividend policy that will provide increased dividends to the State over the medium term, announced by ESB in October 2013, and NewERA will be reviewing the dividend policies of the other entities within its remit.

NewERA prepared a report for Government on the financial costs and benefits of a Coillte/Bord na Móna merger in conjunction with the two companies. In June 2014 the Government announced a joint venture between Bord na Móna and Coillte focusing on their common business activities in bioenergy, wind energy, shared services, and recreation and tourism. NewERA will oversee the implementation process to give effect to the Government decision.

Managing claims against the State

Acting as the State Claims Agency (SCA), the NTMA carries out claims and risk management functions on behalf of the State. In April 2014 the SCA's remit was extended with the delegation to it by Government of the management of personal injury and third-party property damage claims in respect of an additional 61 public bodies, doubling the total number within the SCA's remit from 56 to 117.

The SCA's Legal Costs Unit, tasked with dealing with third-party costs arising from certain tribunals of inquiry, has secured savings of €5.6 million (54 percent) on the 102 tribunal-related legal expense claims resolved by the Unit since it became operational in February 2013. A further 38 claims are currently being managed by the SCA.

The total number of claims under the SCA's active management at end 2013 rose by 7.5 per cent from a year earlier to 6,188. The estimated liability against all active claims at end 2013 was €1.2 billion, of which clinical claims represented 85 per cent and non-clinical personal claims and property damage claims represented 15 per cent.

NAMA meets major debt redemption milestone

NTMA provides the National Asset Management Agency (NAMA) with staff and business and support services including HR, IT, market risk, transaction processing and treasury services.

From inception to end-June 2014 NAMA had generated €20.5 billion in debtor receipts (asset disposals and non-disposal receipts). Its strong cash performance enabled NAMA to meet its first debt repayment milestone - the repayment of €7.5 billion or 25 per cent of its senior debt by end-2013. NAMA has since redeemed a further €5.5 billion meaning that it has now repaid 43 per cent of its total senior debt liabilities significantly ahead of schedule and has announced its intention to redeem 80 per cent of its senior debt by the end of 2016. NAMA has also redeemed €12.5 billion of the €12.9 billion of Senior Bonds issued to the Central Bank in March 2013 as consideration for the IBRC facility deed and floating charge. NAMA expects to redeem the outstanding €0.4 billion balance during the remainder of this year. NAMA publishes its annual report separately.


1."Top slicing" involves reducing the amount outstanding of a bond by buying some of it back from investors and/or offering investors the opportunity to sell their holdings of the bond in exchange for another.

2. Excludes Irish Water and PPP (schools and roads) commitments.

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