ESB borrows €365m in US bond sale

STATE-OWNED power company ESB has borrowed more than €360 million from US financial institutions through a bond sale. The group said yesterday it had raised $507 million (€365 million) in the US private placement market.

The fundraising was oversubscribed and attracted interest “from a wide range of US institutional investors”, the ESB added.

Most of the bonds have to be repaid after 10 years, but some tranches mature in four years and others in 12 years.

The company intends using the money to fund its strategic plan, which will involve a total investment of €22 billion by 2020.

The move will increase the ESB’s average debt to €2.3 billion from its current level of about €2 billion. Six years ago, the company borrowed €1 billion from US institutions using similar instruments.

A spokesman told The Irish Times that the ESB is paying “somewhat more interest” on the bonds issued yesterday than those it issued in 2003, but not significantly more. The company did not reveal the rates at which it must repay the debt.

He explained that, while wholesale interest rates are lower, margins are higher. In other words, the banks are paying less for money on the wholesale market, but they are charging more interest for it. The ESB said this was true for every borrower in the world.

Rival State company Bord Gáis recently borrowed €550 million by issuing bonds to US investors. At the time it said it was paying 0.6 of a percentage point more in interest than German utilities, because the Republic’s credit rating had been downgraded.

The ESB did not say if it had to pay a similar premium. The spokesman pointed out that the fact that the bond issue was oversubscribed reflected the confidence lenders have in the company.

In 2005, the ESB put in place a facility with its banks allowing it to borrow up to €1.2 billion. It has since drawn down about half of this. According to its last annual report, in 2007, it paid interest of €79 million on borrowed money.

The current round of financing will go towards the ESB’s plans to move from a conventional generator and seller of electricity to a more broad-based business with an international arm, a strong presence in renewable energy and an investor in new technology.