Cantillon

Inside the world of business

NTMA holds fire on intentions over bond swap

A SECOND foray into the bond markets by Ireland in as many months looked very much on the cards at the start of the week, but has now faded.

As on the previous occasion a massive three-year liquidity exercise by the European Central Bank would set in train a choreographed series of fortunate events.

The Irish banks would fill their boots and then use the money to buy new Irish Government bonds, the proceeds of which would be used to extinguish some existing debt.

The banks would have made a turn and Ireland would have taken another small step towards a full return to the market, with a second bite taken out of the €11.8 billion bond due in January, 2014.

But then on Tuesday the Government announced that Ireland will have a referendum on the European Stability Treaty. Fianna Fáil may have rallied to the national interest and pledged its support but the uncertainty engendered by our idiosyncratic record on referendums immediately sent bond yields in the wrong direction.

The rise was not precipitous by any means, with yields on the 2014 bond up from 3.9 per cent to 4.5 per cent and still well below the 5.5 per cent level against which the January bond swap was conducted.

On this basis the National Treasury Management Agency might be tempted to still go ahead and try to repeat last month’s success. The Irish banks are presumably ready to play their part, with AIB and Irish Life Permanent saying yesterday they took part in the allotment.

But given that the optics of the bond swap are almost as important as the actual smoothing of the funding profile, the NTMA may not wish to run the risk of a lukewarm response .

All will be revealed shortly.

O'Leary puts gloves back on

LAST SEPTEMBER Michael O’Leary struck a rather incongruous, almost statesman like tone when he announced that Ryanair would not bid for the Government’s stake in Aer Lingus “if any such offer would be regarded as unwelcome”.

He said Ryanair would “welcome” the sale of the stake to another “financially strong airline or investor”. And to top it off he said Ryanair would “be happy to enter into negotiations with such a shareholder for the disposal of its stake” subject to agreement on price, he added.

It was more like “business as usual” on Tuesday when Mr O’Leary called a press conference in London to share a few of his thoughts.

The Government, if it had any sense, should facilitate an immediate merger of Aer Lingus and Ryanair in the national interest, he now argued. “If it is sold to anybody else, it is inevitable that Aer Lingus will be broken up because everybody else only wants certain bits: the Heathrow slots and maybe the long-haul. Nobody wants the short-haul, because they will have to compete with Ryanair,” he said.

What brought about this change of heart is not clear but this week’s position is at least more in keeping with the logical and hard-nosed O’Leary we know and that shareholders – if not passengers – love.

Shareholders will no doubt be pleased at the return of the more combative O’Leary.

They may not be so pleased with his new-found desire to merge their company with Aer Lingus if it turns out he is serious in pursuing such a doomed enterprise and not merely engaging on one of his periodic publicity stunts.

Even banks find agri-food  sector flavour of month

NOTHING LIKE the agri-food sector to draw the crowds.

More than 160 people crammed into a conference room at Dublin accountancy firm BDO yesterday morning.

The reason? A breakfast briefing on the subject of opportunities for the agri-food sector.

Having spent years languishing in the shadow of industries such as banking and construction, Ireland’s largest indigenous industry is now at the forefront of economic and business debate, perceived as the great white hope for the Irish economy.

It’s not difficult to see why.

2011 results from Glanbia yesterday were ahead of expectations, with the Kilkenny-headquarted company posting strong increases in revenues and profits, an admirable achievement in a period of economic recession. The results follow last week’s glowing results from Kerry, now a world leader in the field of ingredients and nutritionals.

Yesterday’s briefing at BDO also offered some encouraging insights into the health of the sector at an SME level. While acknowledging the difficulties besetting businesses in accessing credit, according to BDO agri-food companies are finding it easier to source bank finance than other businesses. While this may seem like wishful thinking, it does chime with messages emanating from the banks.

Last week two of the country’s most senior bankers – Bank of Ireland’s chief executive Richie Boucher and Ulster Bank’s head, Jim Brown – specifically namechecked agri-food as a sector being targeted by the banks.

As the head of the Credit Review Office, John Trethowan, pointed out yesterday in a different context, banks need to lend in order to make profit, and it seems like Irish banks are keen to make sure they’re getting some of the pie when it comes to Ireland’s agri-food sector.

Equity finance, in the form of managed funds or private investment, is also beginning to seek out the agri-food sector in a bid to get a return in the midst of the continuing fragile investment climate.

What remains to be seen is whether venture capitalists, which traditionally have not given much time to the agri-food sector, may begin to eye opportunities in what is set to be an interesting area over the next few years.

QUOTE OF THE DAY

"It is arguable that interest rates are too high, that they are being constrained by the fact that interest rates can't go below zero" - Fed chairman Ben Bernanke addressing Congress

TODAY

Euro zone finance ministers meet – chaired by Jean-Claude Juncker (right) – in Brussels to discuss Greece and its private sector debt restructuring.

ONLINE

You can get the latest news each business day at irishtimes.com/businessor by following us on Twitter at twitter.com/IrishTimesBiz.

We also have a Facebook page at facebook.com/IrishTimesBizwhere you can read the latest business headlines, blog posts and reader polls.