Inside the world of business
Bond move is licence to thrill
THE SUCCESS of the National Treasury Management Agency’s decision to ask investors to switch out of the so-called D-Day Bond, the first major debt to be repaid after the EU-IMF bailout programme ends in 2013, was clever. It was a smart move, even if the majority of those availing of the switch were Irish domestic banks.
The NTMA took advantage of a drop in the market cost of Government borrowing on three-year debt and proceeded with an offer that pushes out the repayment of €3.53 billion of debt by 13 months.
The cost of borrowing on three-year money for the Government has plummeted to about a quarter of what it was last year.
Donning the green jersey on this occasion made absolute sense and was of benefit to all involved.
The Government has reduced the height of the first bond cliff to be overcome in January 2014 from €11.8 billion to €8.3 billion and the Irish banks can conveniently use the three-year bonds as collateral to borrow new three-year loans from the European Central Bank.
Bondholders who availed of the switch – of which in excess of 80 per cent are said to be domestic banks – have cashed in the 2014 bonds at 4.9 per cent and agreed to lend to the Government on 2015 bonds for 5.15 per cent.
The decision to proceed with the switch offer was made after a number of parties told the NTMA they would like to do it. The process is known as “top-slicing”, where you decide to take action on an allocated part of an amount in question – in this case €3.5 billion of the €11.8 billion.
The new three-year bond must be repaid by the Government on February 18th, 2015, which neatly coincides with the date of the ECB’s next auction of three- year loans on February 29th. It’s a win-win for the banks and the Government so it’s a nicely timed deal.
The switch might be not help the Government kill off talk of the country requiring a second post-2013 bailout programme, but it will certainly help counter it.
Shock surge of support for Mayo seawater plan
PRESUMABLY PUMPING large quantities of seawater to a reservoir on a mountain – the last place you would expect to find seawater – and then using it drive a hydro- electric power plant, has serious implications for the environment.
Cork-based Organic Power is proposing to do this at Glinsk Mountain on the Mayo coast.
The idea is that excess electricity from wind farms could be used to pump the water to the reservoir, which could then be released as needed to drive the hydro-electric turbines to produce electricity that the company intends exporting to Britain.
A similar system, using fresh water, already operates in Turlough Hill in Wicklow, where the ESB had to build a cavern in the mountain to house the hydro-electric plant. Organic Power has been working on the concept for some time and looked at a number of sites and has settled on this one.
National grid manager Eirgrid has reportedly offered to study the feasibility of linking the project to Britain. Mayo County Council supports the idea in principle. It is early days, but so do community groups and local businesses.
This is the surprising aspect. Not far away, the local community, or a significant part of it, has bitterly opposed the construction of a 5km pipeline at Sruwaddacon Bay, that will be used to bring natural gas ashore from the Corrib field. The project has cost the field’s owners, Shell, Statoil and Vermillion, almost €3 billion, and it is a decade since the Government approved the project.
Shell, the field’s majority owner and developer, must be, at the very least, bemused by the fact that not far away from where it has fought a long battle to get permission to build a 5km pipeline, locals reportedly support an huge engineering project with serious environmental implications.
It is possible that because it is a “clean” energy project, that is, it will not burn coal, gas or oil, that people have missed its other environmental implications. Once it begins to go through planning, those implications will become obvious.
You can only wonder how long that community support will last.
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