Ireland endured a torrid few years after its 2010 banking crisis, but with much painful restructuring completed the sovereign is active again in the markets and kicked off 2016 with the eurozone’s first syndicated transaction of the year. 

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The issue was received enthusiastically, says NTMA’s Frank O’Connor

The financial crisis hit Ireland hard, turning the country from a Celtic tiger to a limping moggy, forced to accept a €67.5bn loan from the so-called Troika of the International Monetary Fund, the European Commission and the European Central Bank. 

That was in 2010, but by 2013, when Ireland became the first troubled eurozone state to exit the Troika bail-out programme, the country was on the road to recovery. Since then its economy has steadily gained momentum, with unemployment falling, consumer spending rising and gross domestic product growth among the fastest in Europe. 

Enthusiastic response

Positive news has fostered rising demand for Irish sovereign paper among institutional investors. So when the National Treasury Management Agency (NTMA) announced on Wednesday, January 6 that it was planning to issue a 10-year benchmark ‘in the near future’, the response was swift and enthusiastic.

“We said at the end of last year that we would be issuing between €6bn and €10bn of debt in 2016 and this was our first 10-year bond for two years. It was our first syndicated deal since February 2015 and we hadn’t even raised money via a bond auction since October,” says Frank O’Connor, director of funding and debt management at the NTMA.

January is traditionally a busy month for sovereign issuance, but this year Ireland was the first country in the eurozone to issue a syndicated transaction. That meant there were no pricing reference points in the market and investor reception could have gone either way. However, the NTMA believed that being first off the block would prove advantageous. 

“We normally try to do a benchmark deal fairly early on and we were keen to do that again this year. In the end, there were two particular reasons why we chose that first week in January. First, even as equity prices were falling, bond prices were rising so yields were going lower. And second, because none of the other eurozone sovereigns were issuing that week, we felt it gave us more control over our pricing,” says Mr O’Connor.

Against that backdrop, the NTMA held a conversation with its bookrunners early on Wednesday, January 6. The agency has a roster of 17 primary dealers and adopts a ranking system, based on their participation in auctions, secondary market turnover, marketing, research and a number of other factors.

“We rank our primary dealers and choose bookrunners from the upper half of the group. Then we traditionally select six from the list for a benchmark deal and we look at the quality of those banks and the geographic spread,” says Mr O’Connor.

The chosen few this time were Barclays, Bank of America Merrill Lynch, Davy, Morgan Stanley, Royal Bank of Scotland and Société Générale Corporate & Investment Banking. And once the mandate had been announced on the afternoon of January 6, momentum picked up fast.

“The speed of execution was really impressive. We made the announcement on Wednesday at 3pm and the books had closed and priced by lunchtime the next day,” says Mr O’Connor.

Investor relations

The deal benefited from a positive tone in the bond market and Ireland’s own economic recovery. However, the NTMA also works hard at developing and maintaining long-term relationships with investors around the world.

“We spend a lot of time on investor relations. We try to get to every major financial centre at least once a year and make more regular trips to London, Paris and Germany. Even during the crisis, when we were not issuing any bonds, we still kept in contact with investors,” says Mr O’Connor.

This dedication has paid off over the years and contributed to a particularly strong response in January. The books opened on the morning of January 7 with price guidance of mid-swaps plus 25 basis points, heavy demand allowed the pricing to come in by one basis point within an hour, and the books closed after attracting more than €9bn of demand and more than 160 orders. 

“We were very pleased with the deal, not just the level of demand but also the quality of the book, with strong, real money accounts and 88% of the bonds taken up by overseas investors. We were delighted that the deal priced at fair value to the curve so there was no new issue premium, which was not the case for many sovereigns in the latter part of last year,” says Mr O’Connor.

A steady hand

Keeping the size of the transaction at €3bn undoubtedly gave Ireland a strong hand when it came to pricing, but the NTMA was determined not to increase the deal.

“It’s very important for us to maintain liquidity throughout the year so we didn’t want to risk cannibalising our auction process by doing more than €3bn in this benchmark deal,” says Mr O’Connor.

The deal was priced to yield 1.156% and actually narrowed slightly in subsequent days, despite overall market nervousness. “Some peripheral issuers widened a bit when sentiment became unsettled but people actually came into our market, as conditions worsened, which shows that we’ve definitely moved from peripheral to semi-core,” says Mr O’Connor.

“Overall, I feel that the pricing, the execution and the demand are all testament to the progress that we’ve made,” he adds.

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