FUNDING:THE EURO zone's rescue fund is delaying a bond sale it planned to use for financing the Republic's bailout, blaming market turbulence sparked by Greece's referendum move.
The postponement will mean the National Treasury Management Agency, which manages Irish debt, must use its own resources to redeem a €4.4 billion bond due later this month.
Many investors were unwilling to buy the debt issued by the European Financial Stability Facility (EFSF) because of the market volatility and the lack of clarity over the structure of the fund, which is still being decided as policy-makers attempt to increase its leverage and fire-power.
It will attempt to issue the planned €3 billion 10-year bond deal in the next two weeks. It had been earmarked to price yesterday. While aimed at providing finance for the Republic, repayments to investors in the bond will not be connected to the Irish economy or how it develops.
Christof Roche, a spokesman for the Luxembourg-based fund, said: “The deal has been put on hold due to market uncertainty and volatility.”
One EFSF investor expressed some disquiet. “This is a fund that is supposed to have the fire-power of €1 trillion, yet it can’t even raise €3 billion. That is very worrying.”
However, a banker said: “The Greek decision to call a referendum has scuppered the chances to price this bond. I think it has been an exceptionally difficult week. These are very unusual circumstances.”
Another banker said: “We have to look at windows of opportunity before we price bonds and the moment is not right today.”
People familiar with the situation said the bond will not be priced this week as bankers will wait for the outcome of the G20 summit in Cannes today and tomorrow before trying to sell the debt.
The EFSF bond was expected to price at yields of 3.30 per cent, and 150 basis points over Germany, the European market benchmark. This represents a big mark-up since mid-September, when existing 10-year EFSF bonds were trading at about 2.60 per cent, only 70 basis points over Germany. The EFSF has issued three bonds previously: two five-year maturities and a 10-year one.
Bankers said Chinese and Japanese investors had been big buyers of EFSF bonds earlier in the year on the basis they were triple-A rated with a big premium over Germany, which was seen as a risk-free premium. However, as worries over the euro zone and its ability to tackle the crisis have deepened, the focus has shifted to the structure of the EFSF, which is still unclear and may mean these bonds could be difficult to sell back to the market.– (Copyright The Financial Times Limited 2011/Bloomberg)
