Talks to boost Republic's credit rating with agencies

THE ORGANISATION responsible for managing the State’s sovereign debt is pushing international agencies to boost the Republic’s credit rating in order to cut the interest that will be charged on future Government borrowings.

John Corrigan, chief executive of the National Treasury Management Agency (NTMA), told a Dáil committee yesterday that the Republic will have to start borrowing from international debt markets again in 2013.

He also said the NTMA had been in talks with international agencies such as Standard Poors (SP) and Moody’s to get them to raise the Republic’s credit rating, which should help cut the interest rate charged on any money borrowed by the State in the future. The interest on Irish bonds has fallen to about 7.5 per cent from a high of more than 13 per cent. Lenders charge high interest on loans where they believe there is a high risk that the debt may not be repaid.

Investors who lend money to governments and corporations take their lead from ratings produced by Standard Poors, Fitch and Moody’s. A low rating from one or all of these organisations is likely to prompt lenders to increase the interest they charge.

Earlier this year, Moody's downgraded the Republic’s debt to “junk” status, implying a high risk of default. Mr Corrigan told the Dáil Committee on Public Accounts that the State’s rating is currently outside investment grade. He added that the NTMA has been putting pressure on the agencies to revisit this as the State has been meeting the terms of the EU-IMF bailout deal. “It would be nice if, over the next 12 months, the credit rating agencies recognised the progress that we have made,” he said.

He told the committee that the credit ratings agencies representatives which his staff had met were positive about the way the Republic is managing its finances.

Speaking after the meeting, Mr Corrigan said that even a small adjustment, from a “negative” outlook to “stable”, for example, could make a big difference to the interest charged on the State’s debts.

The State will have to begin borrowing from international markets in 2013 as it needs to refinace debts that fall due the following year. Mr Corrigan said that once it begins borrowing from the markets, it will have to pay higher interest than the 3 per cent charged on the money advanced by the EU-IMF.

Meanwhile, LCH Clearnet, Europe’s biggest clearing house for bond sales and other international transactions, has cut the deposits it requires from clients who want to trade in 10-year Irish bonds to 45 per cent from 55 per cent. The move is another sign that the markets are beginning to regard the Republic as less of a risk for investors.

Yesterday’s public accounts committee also heard the value of the State’s investment in AIB and Bank of Ireland has fallen by just over €10 billion since 2009.

The State pumped €4.8 billion into Bank of Ireland. As of last month that was worth €3.5 billion, a loss of €1.3 billion.

It put €16.1 billion into AIB, and that is now worth €7.2 billion, a loss of €8.8 billion.