Cantillon

Inside the world of business

Burning the bondholders no way to achieve economic growth

IT’S BEEN a while since bondholders of Irish corporate or sovereign debt – once the villains of the Irish financial crisis – have been in the news, but yesterday the bondholders debate reared its head again as AIB repaid €1 billion worth of senior unsecured debt, plus interest.

The bond in question had been issued by the bank on October 1st, 2009, with an interest rate of 4.5 per cent payable each year in arrears.

The list of bondholders include an interesting collection of names from the investment world, including Swiss private bankers Lombard Odier Darier Hentsch and Pictet Asset Management Limited, Portuguese bank Banco Espirito Santo and Alliance Global Investors France.

Despite the protests from some groups yesterday, burning senior bondholders was never going to be on the agenda. Throughout the financial crisis, the ECB has remained intransigent about the possibility of burden-sharing with senior bondholders, although there were hints in July that it could be open to some discussion on the topic.

Even disregarding European objections, burning bondholders of AIB or Bank of Ireland is a non-runner. The Government has committed to developing both banks as the two main banking pillars in Ireland. Suggesting that AIB should not repay money lent by groups of international investors, however faceless, three years ago is nonsensical. Issuing bonds is part and parcel of how functioning banks fund themselves, before this financial crisis ever emerged.

While it may gall people that the Irish taxpayer is also now a significant funder for AIB and Bank of Ireland, threatening to burn senior bondholders would be utterly self-defeating in the long term.

With Ireland operating with a skeletal domestic banking system, ensuring the viability and credibility of Irish banks in the international investor community is vital for future economic growth.

Tariff row intensifies as gas firm and regulator go to High Court

SHANNON LNG and the Commission for Energy Regulation have been rowing for some time over the proposed method of charging for the State’s natural gas network.

Effectively, the regulator wants Shannon LNG, owned by US giant, Hess, to contribute to the cost of maintaining two natural gas interconnectors with Britain.

All other operators in the Irish gas market must also contribute to this, but Shannon LNG says that it should not have to do so as it will not require the interconnectors.

The company will import liquified natural gas from the US, where the fuel is exceptionally cheap at the moment, to its proposed facility at Tarbert, Co Kerry, on the Shannon Estuary, and supply it from there.

The regulator argues that the interconnectors are a critical part of the overall infrastructure that Shannon LNG intends using, and has to be paid for.

Even when the company begins importing from the US, supplies will still have to come via the interconnectors. At present, over 90 per cent of Irish natural gas requirements are imported via this route.

The issue now looks destined for the courts. The first salvoes in a case with Shannon LNG on the one side, and the energy regulator, Ireland and the Attorney General, on the other, are likely to be fired in the High Court today, where it is scheduled for an initial judicial review.

Network charges are a considerable component of all energy bills. About half the 8.5 per cent increase that Bord Gáis is applying to households and small business for the supply of natural gas can be attributed to network costs.

A portion of that is down to the cost of maintaining the interconnectors. It will be interesting to see what the High Court makes of it all.

New car sales down at least 12%

NEW CAR sales have fallen 12 per cent in the first three-quarters of this year compared to last. That’s a pretty grim figure for the trade but the reality is likely to be even worse.

According to the latest trade figures 76,630 were sold so far this year. However, this figure is based on the number of cars issued with new registration plates. In the motoring world that doesn’t necessarily mean these “new cars” are on our roads.

A proportion of these cars fall into what the motor trade refers to as “pre-registrations”. These are cars registered to dealers rather than customers and then sold on as low mileage ex-demos. Often this is done to meet market share targets or by dealers to achieve sales bonus targets. Dealers eventually sell the cars as used vehicles at big discounts.

Then there are the hire drive cars, of which there have been 11,700 registered this year. Therefore the actual figure for the number of new cars registered by buyers is likely to be considerably less than the quoted 76,630.

Last week at the Paris motor show Roelant de Waard, vice-president of marketing, sales and service at Ford of Europe, spoke about this bizarre practice where car firms and dealers actually buy cars from themselves.

He said the practice has become widespread in Europe and accounted for 30 per cent of industry registrations in Germany in the first eight months of the year.

The practice of pre-registrations highlights a widespread problem of over-capacity in the European motor industry, one that car firms have been slow to address.

In Ireland a shortage of relatively young used cars will soak up the pre-registrations, but predictions for next year are relatively bleak. A straw poll of Irish distributors suggested that most estimate the total new car market will be in the region of 75,000 for 2013. That’s down from this year – which is likely to finish close to 79,000. It also takes no account of the pre-registrations that will take place. Another difficult year beckons.

"This is not public debt. It should not be paid with public money."

Sinn Féin finance spokesman Pearse Doherty on the repayment of 1 billion in AIB unsecured bonds

TODAY

Irish Continental egm seeks approval for the €115m tender offer to repurchase 24.9 per cent of its stock

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