State to receive €11.7bn of bailout in early 2011

IRELAND IS to receive €11.7 billion from the EU and the European Financial Stability Facility (EFSF) in the first three months of 2011, when it draws down the first tranche of the country’s €85 billion financial rescue package.

Yesterday, the European Commission announced that the European Union and the EFSF would issue €40.2 billion to the State in 2011 and 2012, almost half of the total €85 billion being made available. The International Monetary Fund, the National Pensions Reserve Fund and bilateral loans will contribute to the remainder.

In a statement yesterday, the EU and the EFSF said they planned to issue bonds next month to fund their contribution to the bailout, with the EU due to issue a bond at the beginning of January, and the EFSF following suit with its bond issuance towards the end of the month. However, they emphasised this would depend on market sentiment in January. “The EU and the EFSF will however carefully analyse the markets after they reopen in the new year and may adapt funding plans accordingly.”

The new triple-A rated debt will be issued in maturities of five, seven, and 10 years, although reports yesterday said the EU had already hired a number of investment banks, including Barclays Capital, BNP Paribas, Deutsche Bank and HSBC Holdings, to manage its first bond sale of five-year notes, in early 2011.

There is expected to be healthy demand for the bonds according to analysts, though the market response will be watched closely by European authorities.

In a detailed outline of the funding plan, the EU said it planned to raise, through the European Financial Stability Mechanism, up to €17.6 billion next year through the bond issuance, and up to €4.9 billion in 2012.

Subject to the State’s requirements, it will issue four to five benchmark bonds next year aiming at raising €3 billion to €5 billion for each transaction, with three auctions taking place in the first six months of the year. It may also complement its funding needs through smaller bond issues, it said.

In co-ordination with the EU, the EFSF aims to raise funds of up to €16.5 billion in 2011 and up to €10 billion in 2012. It aims to issue three benchmark issues worth €3 billion to €5 million each next year, two of which will take place in the first half of the year, though it said this is open to revision.

It may also complement its funding needs with smaller bond issues.