NTMA Results and Business Review 2013

07 January 2014

  • NTMA to resume regular issuance in 2014; plans to raise €6-10bn from markets
  • €7.5 billion raised from markets in 2013 in support of EU/IMF programme exit
  • €1.3 billion invested or committed to Irish economy by NPRF
  • New DIT campus, schools, primary care centres, courthouses being procured by NDFA
  • Valuation of up to €1.12bn for BGE energy business: NewERA advising Government
  • 50% savings achieved by State Claims Agency on tribunal-related legal fee claims

7 January 2014 - The National Treasury Management Agency (NTMA) today reported results for 2013 and provided a review of activities across the range of its business functions.

NTMA Chief Executive John Corrigan said the NTMA had initiated its market engagement for 2014 with the 10-year syndicated bond sale launched this morning, Ireland's first issuance since the end of the EU/IMF Programme. The NTMA's working plan for this year is to raise, subject to bond market conditions, between €6 billion and €10 billion by way of pre-funding for 2015:

"The success of last year's two substantial bond sales confirmed Ireland's ability to access long-term bond markets at sustainable rates. Having initially re-engaged with the short-term debt markets in 2012 followed by two medium and long-term syndications in 2013 and another one today, the final phase in market normalisation will involve a series of bond auctions.''

"2014 will also see the establishment, following the necessary legislative changes, of an overarching NTMA Board to be chaired by Willie Walsh, which will greatly assist the NTMA in delivering on its objectives in an integrated and coherent manner across the range of its business activities. A particular priority is to complete the conversion of the National Pensions Reserve Fund into the Ireland Strategic Investment Fund (ISIF) which will invest on a commercial basis in areas of strategic importance to the Irish economy. Work on the ISIF business plan is at an advanced stage."

Return to the bond markets

The NTMA maintained its intensive investor relations programme through 2012, helping pave the way for Ireland's return to the bond markets in early 2013.

In January 2013 the NTMA issued €2.5 billion of the existing 5-year benchmark bond at a yield of 3.32 per cent. In March, the NTMA sold €5 billion of a new 10-year benchmark bond at a yield of 4.15 per cent, its first new 10-year benchmark issuance since January 2010, prior to Ireland's entry into the EU/IMF programme. Regular auctions of short-term Treasury Bills, which resumed in July 2012, continued through 2013 with eight auctions during the year.

The NTMA's own market funding combined with drawdowns of €11 billion under the EU/IMF programme during 2013 were applied to fund an Exchequer deficit of €11.5 billion and to refinance €5.1 billion of maturing long-term debt along with the recent buyback of €4.1 billion of the January 2014 bond. The NTMA maintained Exchequer cash and deposits of €18.5 billion at year end, leaving the Exchequer fully funded into the first quarter of 2015. Exchequer cash debt service costs in 2013 were €8.1 billion.

Irish Government bond yields (which move inversely to prices) declined in 2013 - continuing the sustained rally that began in July 2011 when 10-year yields peaked at over 14 per cent - and are currently below 4 per cent. Ireland is now trading much closer to German 10-year yields than both Italy and Spain.

General Government Debt (GGD)1 was estimated by the Department of Finance in October to peak in 2013 at 124 per cent of Gross Domestic Product (GDP) before declining to just under 115 per cent by 2016. Taking into account the bond buyback in mid December it is likely that the end 2013 GGD/GDP ratio will be below the October estimate.

Investing in Ireland

In anticipation of its conversion into the Ireland Strategic Investment Fund, to be managed by the NTMA, the NPRF has been working to develop a pipeline of potential investments. A number of these have been concluded and as a result, the NPRF now has €1.3 billion invested or committed to areas of strategic importance to the Irish economy including infrastructure, venture capital and long-term financing for SMEs.

Significant commitments made in 2013 include an investment of €375 million in three new long-term funds that are providing a total €850 million of equity, credit and restructuring/recovery investment for Irish small and medium-sized businesses and mid-sized corporates. The NPRF played a significant role in the development of the funds, all of which have established a local presence, and is a cornerstone investor in each alongside additional investment from third-party investors. The NPRF also provided a bridging loan of €250 million to Irish Water to cover start-up costs and the initial phase of water meter installation.

The Discretionary Portfolio (the Fund excluding the public policy investments in Allied Irish Banks and Bank of Ireland made at the direction of the Minister for Finance) earned a preliminary return of +6.3 per cent in 20132. 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. Since the Fund's inception in April 2001, the Discretionary Portfolio has delivered an annualised return of +3.9 per cent per annum. At 31 December 2013 the value of the Discretionary Portfolio was €6.8 billion. Following the necessary legislative changes, all of the Discretionary Portfolio will be available for commercial investment in Ireland to support economic activity and employment.

At 31 December 2013 the preliminary valuation of the Directed Portfolio was €13.1 billion, comprising ordinary and preference shares in Allied Irish Banks, ordinary shares in Bank of Ireland and cash which derived from the realisation in December of the Fund's preference share investments in Bank of Ireland.

Infrastructure project delivery

The NPRF helped facilitate the first Public Private Partnership (PPP) projects since Ireland's entry into the EU/IMF programme - Schools Bundle 33 and N11/Newlands Cross - by providing a total of €129 million in standby credit facilities which enabled both projects to proceed to financial close with European Investment Bank funding.

The National Development Finance Agency (NDFA), which operates through the NTMA, is the financial advisor on both of these projects as well as the procuring authority for Schools Bundle 3. Construction work on Schools Bundle 33 and N11/Newlands Cross is well underway and the first of eight schools was recently completed.

The NDFA is the financial advisor on the €1.4 billion of PPP projects announced by the Government in July 2012 as part of the Infrastructure Stimulus Package. In addition to its role as financial advisor on both the road (€750 million) and non-road (€650 million) elements of the PPP programme, the NDFA is also responsible for procuring the non-road projects which comprise the Grangegorman DIT campus, schools, primary healthcare centres, courthouses, and divisional Garda headquarters. The NDFA has been actively promoting the Irish PPP market with a view to attracting interest from both domestic and international investors and contractors.

In 2013 the NDFA arranged €141 million in funding from the European Investment Bank and the Council of Europe Development Bank for non-PPP projects in the education and justice-related sectors. The NDFA is in discussions with the EIB in relation to further loan facilities for non-PPP projects.

Advising on State assets

Through its NewERA Unit, the NTMA provided advice and project management services to the Government in relation to the sale of BGE's energy business. Following the announcement on 27 November by the Minister for Communications, Energy and Natural Resources that bids received at that date were not acceptable, further engagement with bidders resulted in revised bids which offered materially increased value. A consortium comprising Centrica plc, Brookfield Renewable Power Inc and iCON Infrastructure was selected on 12 December as the preferred bidder on the basis of its revised bid which has an enterprise value of up to €1.12 billion.

NewERA also worked closely with ESB and provided advice to the relevant Government Departments in relation to the sale in November 2013 of ESB's 50% shareholding in UK-based Marchwood Power Ltd.

NewERA also reviewed the dividend policy of ESB and provided advice to the relevant Government Departments on a revised dividend policy, as announced by ESB on 23 October 2013, that will provide increased dividends to the State over the medium term.

NewERA is actively participating in the ongoing establishment of Irish Water, which includes advising on its financing and funding structures. NewERA is undertaking financial analysis for the shareholder Departments to establish how a beneficial merger of Bord na Móna and Coillte might be given effect. It continues to work with the relevant Government Departments and other stakeholders on investment initiatives in the areas of energy retrofit, export wind and broadband. In November 2013 Sustainable Development Capital LLP (SDCL) was selected as the preferred applicant to establish and manage the €70 million Energy Efficiency Fund which is a key step in developing innovative funding solutions in the energy retrofit sector.

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. The SCA's Legal Costs Unit, tasked with dealing with third-party costs arising from certain Tribunals of Enquiry, has secured savings of 50 percent on the €4.2 million of tribunal-related legal expense claims resolved by the Unit since it became operational in February 2013.

The SCA achieved savings of €34 million in the management of clinical claims in 2013.

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 December 2013 was €1.2 billion, of which clinical claims represented 83 per cent and non-clinical personal claims and property damage claims represented 17 per cent.

NAMA meets major debt redemption milestone

The NTMA provides the National Asset Management Agency (NAMA) with staff and business and support services including HR, IT, market risk, 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 656 staff employed by the NTMA at end 2013, 332 were assigned to NAMA.

In 2013 NAMA met its first major milestone - the redemption of €7.5 billion of the €30.2 billion of Senior Bonds issued as consideration for the original loans acquired from the participating institutions in 2010 and 2011. NAMA has also redeemed €1 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.


1 General Government Debt, the standard measure used for comparative purposes across the European Union, is a gross measure and does not allow for the offsetting of Exchequer cash balances. As well as the National Debt it includes local government debt and the debt of non-commercial State bodies.
2 Information in respect of the NPRF is, in the case of direct quoted investments, based on valuation as of close of business on 31 December 2013 and, in the case of indirect investment vehicles, based on the most recently available valuations.
3 Eight schools providing accommodation for c. 5,700 students.

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