Buyers of Nama bonds pick up a bargain

The buyers of Anglo’s subordinated Nama bonds would appear to have got a bargain, possibly at the expense of the taxpayer.

Anglo was given the bonds – face value €841 million – in part payment for the property and development loans it transferred to Nama in 2010. They found their way into IBRC and ultimately the liquidators KPMG.

Last week the bonds were sold for a putative €600 million, representing a discount of around 30 per cent. Not bad when you consider that little over a year ago they were valued at €124 million, reflecting the risk, then, that Nama would not be able to repay them come 2020.

Not good, however, when you consider that worries about Nama have all but evaporated and speculation now centres on how far ahead of schedule it will be wound down and how big the dividend to the taxpayer will be.

The discount can be explained, in part,by risk factors such as Nama’s right to alter coupon payments and extend the maturity date. Indeed the bonds were not designed to be traded. They were really a loss-sharing mechanism between Nama and the banks and some investors at least would be wary of them because of unorthodox terms and conditions.

The more difficult question is why Nama did not take advantage of the discount to buy back in the bonds and book a €200 million-plus profit. The answer to that would appear to have more to do with political expediency than prudent treasury management.

Buying back in the subordinated debt is “not consistent with the Minister’s recent review”, according to Nama. Or, to put it another way, Nama cannot hit its target to repay 60 per cent of senior debt by 2016, solve the Dublin housing crisis and also buy back its subordinated debt all at the same time.

Even the mighty Nama’s superpowers have their limits it seems.