NTMA delivers 2020 midyear update - Agency also publishes its 2019 Annual Report

  • From a borrowing perspective, because of Ireland’s current credit rating and current refinancing requirements and because of the current interest rate environment, the NTMA is not worried about the next four years. It is the decade after that we need to keep an eye on and begin to plan for
  • Covid-19 is a major economic shock but Ireland is approaching it from a position of strength
  • Improvements in Ireland’s fiscal position, the elimination of €70bn debt chimneys, the smoother and longer profile of our debt, and a supportive interest rate environment leave Ireland well placed to borrow the additional amounts required to fund the measures to support our recovery
  • Ireland’s improved credit worthiness created significant room to manoeuvre and capacity to borrow in response to the crisis
  • 2020 borrowing programme has already raised €18.5bn, 84% of mid-range of increased €20-24bn full-year target, at average yield of 0.3pc and average maturity of 11 years
  • However, increases in Ireland’s already high debt levels create exposure to rising interest rates in the medium term
  • ISIF’s new Pandemic Stabilisation and Recovery Fund (PSRF) has the capacity to deploy up to €2bn in firepower for medium and large businesses to support their recovery and medium-term growth.

15 June 2020 - The National Treasury Management Agency (NTMA) has today delivered a midyear update for 2020 and published its 2019 Annual Report.

Comment by the NTMA Chief Executive, Conor O’Kelly:

“From a borrowing perspective, because of our current credit rating, because of our current refinancing requirements, and because of the current interest rate environment, we are not worried about the next four years. It’s the 10 years after that we need to keep an eye on and begin planning for.

Ireland is well placed to tackle this unprecedented shock from a position of strength thanks to the significant improvements in our fiscal position over the last 5 years; the elimination of our debt chimneys; and a range of upgrades by ratings agencies that have recognised the extent of the progress Ireland has made.

We have the benefit of historically low interest rates and accommodative ECB policy that have created the capacity we needed to increase borrowings quickly in response to the economic threat posed by Covid-19.

While our absolute position is strong – our relative position has improved enormously. In the last crisis Ireland was treated by lenders as a peripheral credit; while today Ireland is a semi-core borrower trading alongside countries like Belgium and France.

Reflecting this, we have successfully stepped up our borrowing activity in response to Covid, taking advantage of favourable market conditions to raise €18.5bn so far in 2020, representing 84% of the mid-range of our revised €20-€24bn full-year target. This debt was raised at an average yield of less than 0.3pc and an average maturity of 11 years.

The benefits in terms of interest savings are significant. In the past five years Ireland’s interest bill has fallen from €7.5bn to circa €4bn for this year, giving savings of over €3.5bn per annum or €35bn over ten years.

But it is important to remember that these exceptionally favourable borrowing conditions are unlikely to last forever; debt taken on at near-zero rates today will need to be refinanced in the future and potentially at a higher cost.

Ireland is a small, open economy with substantial borrowings that relies on international investors to buy over 90% of its marketable debt. This means Ireland always needs a contingency plan to be prepared for economic shocks, market volatility and events outside our control.

While addressing Covid-19 is today’s urgent priority, Ireland should prepare for dealing with a higher debt burden and the risks that this entails. It’s possible the tailwinds that exist today will be replaced with headwinds in the future”.

The NTMA Chief Executive also provided an update on the ISIF Pandemic Stabilisation and Recovery Fund (PSRF), which was announced by the Government in May.

The new Fund has the capacity to deploy up to €2bn from existing ISIF resources to invest debt, equity or hybrid capital in Irish businesses with revenues of more than €50 million or more than 250 employees. The Fund will invest on a commercial basis to support businesses that have a path to return to long-term viability post-Covid.

Mr O’Kelly said:

  • The Companies that the Fund is targeting are generally in a strong financial position and well placed to meet the short-term challenges created by Covid-19, either through their existing equity and debt base or third party capital. However, as economic conditions evolve these companies may require additional capital to meet their medium-term requirements.
  • Although the PSRF is operating less than six weeks, ISIF is engaged with approximately 30 companies many of whom are critical employers in the Irish economy. These businesses cover a wide range of sectors but, mirroring the sectors most impacted by Covid-19, are concentrated in transport, hospitality, tourism and retail.
  • The PSRF envisages two distinct phases: the initial stabilisation phase where the impact of the Pandemic is still at its height and companies are in urgent need of capital and support; and the Recovery phase as companies try to rebuild and return to levels of activity, employment and profitability that existed before the Pandemic. This phase could last several years and will bring ISIF back toward its original mandate.

Comment by the Minister for Finance, Paschal Donohoe TD:

I welcome today’s publication of the NTMA’s Annual Report and Accounts for 2019 and I commend the Agency’s team for their 2019 performance.

The NTMA is playing an important role across all its business units as part of the State’s response to the challenges of COVID-19 and I want to express my thanks for the work that they have done in this respect so far in 2020 and to encourage even greater efforts from them in the future.

I also want to highlight the potentially very important contribution that the Ireland Strategic Investment Fund can make to supporting economic recovery. ISIF can do this through direct investment or through platform investment from the Pandemic Stabilisation and Recovery Fund. In recent weeks, the ISIF team have been working to ensure critical funds are available to viable businesses in need of support due to the economic impact of the pandemic."

NTMA business units - 2019 Annual Report key points

  • The Funding and Debt Management unit raised €15bn in long-term debt during 2019 by way of syndications and auctions at a weighted average yield of 0.9%.
  • In May 2019, the NTMA sold €4bn of a new 30-year benchmark bond at a yield of 1.5%. This bond matures in 2050 and is the second 30-year bond issued by the NTMA in recent years.
  • Second successful issuance of Irish Sovereign Green Bonds, raising an additional €2bn for projects with a positive climate impact.
  • Annual debt servicing cost reduced to €5bn, more than 30% below peak in 2014.
  • The Ireland Strategic Investment Fund (ISIF) delivered investment returns of 5.1% in 2019, bringing total investment gains since inception to more than €1bn for the first time.
  • The Fund committed €442 million to 21 new investments in Ireland during 2019, bringing the total amount committed to Irish projects and businesses to €4.6bn.
  • The Fund continued to act as a catalyst for attracting private sector co-investment into Ireland, with the total committed to these projects and businesses growing to €13bn to date since inception (inclusive of ISIF’s €4.6bn). This means ISIF continues to exceed its original co-investment target of €1 for every euro invested by ISIF, generating a current run rate of €1.80 co-investment for every euro invested.
  • The Fund will continue to reduce its exposure to global markets following Government measures to reallocate a part of ISIF’s capital to other initiatives in the Irish economy, including through funding Home Building Finance Ireland (€750m) and the Land Development Agency (€1.25bn) and providing capital (€1.5bn) for the Government’s “Rainy Day Fund” to enhance the State’s contingency planning.
  • In May 2020, the Fund established the €2bn Pandemic Stabilisation and Recovery Fund, a sub-fund that will assist in Ireland’s economic recovery by investing on a commercial basis in medium and large Irish businesses affected by Covid-19.
  • The National Development Finance Agency is supporting delivery of PPP and Exchequer funded Projects in the education and housing sectors with an estimated total capital value of €1.3bn, including the delivery of 1,500 new social housing units across 3 project bundles. It is providing financial advice on PPPs and other infrastructure projects with an estimated total capital value of €5.7bn.
  • NewERA continues to assist Government departments and State authorities by providing corporate finance and shareholder advisory services to Ministers in respect of commercial enterprises within their remit. The number of assignments on which NewERA has provided analysis and/or recommendations rose to 138 during 2019, while it advised on capital expenditure programmes totalling €2.2bn.
  • The State Claims Agency (SCA) was managing over 11,500 active claims against State bodies, with an estimated outstanding liability of €3.6bn, at the end of 2019. During 2019 54% of all claims against the State were resolved without court proceedings being served; 44% resolved after proceedings were served but without the need for a court judgement; and 3% resolved by a court judgement (of which 2.5% resulted in the court awarding no damages against the State and 0.5% resulted in a damages award). The SCA’s role includes managing complex and sensitive cases taken against State bodies by individuals and their families and requires the SCA to act in a professional, ethical and compassionate manner in discharging its statutory responsibilities.
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