The National Treasury Management Agency (NTMA) has taken advantage of an arbitrage opportunity to issue a US$500 million bond deal to be swapped into euro.
The transaction, which is the NTMA’s first dollar priced issue in 10 years, will provide the Exchequer with funds at 29.3 basis points under Euribor, which over the five year life of the loan represents an estimated saving of €3.5 million compared with the cost of raising funds in the normal bond auctions.
Oliver Whelan, director of funding and debt management at the NTMA, told FINANCE that the issue was driven by an opportunity to get cheap funding. ‘At the moment in the dollar market there is an arbitrage opportunity for AAA sovereigns to raise funds that can be swapped into euro at rates that are a fair bit lower than what you would get by going into the euro market directly,’ he said.
‘Like all arbitrage opportunities they won’t exist indefinitely but they are there at the moment so we decided to take advantage of that. By doing so, we were able to get funds at 29.3 under Euribor and we were doing that by our traditional way of auctioning euro bonds,’ he added.
The mandate was announced on Wednesday, 16 February, with marketing commencing in Asia overnight and in Europe the following morning. The orderbook was 40 per cent oversubscribed when it closed at 11.30am London time on Thursday 17 February.
Total orders amounted to around US$700 million with 25 investors participating. The distribution was led by Europe, including investors from Ireland, Germany, Scandinavia, Switzerland and the UK who bought a combined 56 per cent. Asian investors, including Japan, followed with a further 38 per cent, and the remaining 6 per cent went to others including US offshore accounts. Bank funds bought half of the deal, and central banks also featured highly with 35 per cent. Bids to manage this deal were received from 15 major international financial institutions and the mandate was awarded to Barclays Capital. Commenting, Susan White of Barclays Capital, who helped oversee the deal, said, ‘We were confident that Ireland could achieve very attractive US dollar pricing given its rarity value in the US dollar market. We were able to provide Ireland with the most comprehensive pricing for a very successful return to the US dollar market.’
Ireland is not the first eurozone sovereign to avail of this arbitrage opportunity. Austria has already come to the US market, as have Spain and Finland. As with the Irish deal, all of these transactions included a swap back to euros at the time of pricing, which cuts out exposure to fluctuations in dollar rates. But despite the success of the issue, Whelan said that the bulk of the NTMA’s funding requirement for the coming year - about €4.5 billion - will be priced in euros rather than dollars. |
