May 31st 2011 – Ireland & The International Bond Markets
On May 31st, The London Irish Business Society (LIBS) hosted an insightful discussion on how the Irish Sovereign is currently perceived by the international financial community. With Irish bond yields remaining unsustainably high, our esteemed panel discussed how Ireland would cope in the face of mounting sovereign debt, subdued investor appetite and deepening Peripheral-Euro zone instability? With the many misconceptions of Ireland’s current situations, this evening aimed to take a detailed look at Ireland’s Sovereign Debt woes through the eyes of the International debt markets. To achieve this, the London Irish Business Society gathered a panel of experts from a wide range of backgronds. The panel on the evening was chaired by Mark Hennessy, London Editor of the Irish Times.
Our esteemed panel included
- Mr. Frank Gill – Senior Director, Standard and Poor’
- Mr. Harvinder Sian – European Rates Strategist, RBS
- Mr. Conor Hennebry – Director, Debt Capital Markets Europe, Deutsche Bank
Deutsche Bank Headquarters, London
Bloomberg – “Ireland should be able to sell bonds in 2012″
June 1 (Bloomberg) — Ireland should be able to access bond markets next year, according to Frank Gill, senior director of European sovereign ratings at Standard & Poor’s. The European Union and International Monetary Fund rescue program “contemplates that Ireland will partially fund itself in commercial bond markets next year and I think there’s a high probability that they can do that,” Gill told journalists at an event in London yesterday. “But it’s highly uncertain at this point. It depends on market conditions.” The Irish government agreed to an 85 billion-euro bailout in November with the EU and IMF after bailing out the country’s debt-laden financial system when a decade-long property bubble collapsed in 2008. Ireland’s Central Bank Governor Patrick Honohan said this week that bond markets will improve and the country’s finance minister, Michael Noonan, has ruled out the possibility of Ireland needing a second bailout next year. “The market’s key concern is the sustainability of an economic recovery when your financial sector is deleveraging within the context of a fixed exchange rate,” Gill said at the event hosted by the London Irish Business Society and Deutsche Bank AG. “We think that throughout the EU/IMF program they will meet all their targets and so won’t need net financing.” Read more…
Ireland has a good chance of financing itself on international capital markets next year without additional help from the International Monetary Fund and the European Union, credit rating agency Standard & Poor’s said last night. S&P senior director Frank Gill was speaking in London at an event organised by the London Irish Business Society. He said S&P thought ‘there is definitely a good probability’ that Ireland can fund itself in commercial markets next year. Mr Gill also said that Ireland’s current €85 billion IMF/EU programme would be enough to meet all of the country’s borrowing needs since ‘there won’t be any unexpected fiscal costs’. He also said that Ireland should be able to withstand a possible debt default by Greece, as the market had ‘the capacity to differentiate’ between both countries.
Fears that weaker euro zone economies could be dragged into a deeper credit crisis increased after Moody’s said last week that a Greek default could push the ratings of Portugal and Ireland into junk territory. And worries about Ireland’s ability to return to capital markets increased after Transport Minister Leo Varadkar was quoted last weekend as saying that the country could need to resort to additional IMF/EU borrowing in 2012. Finance Minister Michael Noonan yesterday ruled out a second bail-out.
The Guardian - Ireland may not be able to return to the international debt markets until 2018, a senior British banker has predicted.
Harvinder Sian, chief euro area interest rate strategist at the Royal Bank of Scotland, told an audience of Irish lawyers and bankers that if the Irish government were to tough it out without a default or a top-up to the current bailout, its return to the markets could be delayed for “another five years from 2013″.
This is because it would take that long to get a clean bill of health free of any unsustainable debt and other risks.
However, a senior banker from Deutsche Bank says he thought investor confidence could be restored far more quickly and good behaviour coupled with austerity might prove attractive to a certain class of fund looking for high returns.
Sian told an audience of 100 Irish business people gathered at Deutsche Bank in London for a London Irish Business Society event that in the long run, sticking rigidly to the “no default, no new bailout” programme could be a far more painful option than joining an expected restructuring programme in the second half of 2013 when Greece is expected to default. July 2013 is the key date for bailout countries because this is when the new expanded EU bailout fund comes into being. Unlike the present fund, it will lend on the basis that there is burden-sharing by the private sector.
Sian said if Ireland went this route it would have to look “fantastic” on economic fundamentals for the markets to allow Ireland to borrow at any reasonable interest rate. This is where the extra five years of measures (from 2013) to bring debt down to acceptable levels comes from – because Ireland will be issuing de facto junior debt at this point.
Is it not easier to default and get it over with?
Sian said it was important for Ireland to continue to redouble efforts to bring down bank debt, but ultimately it might have to accept the lesser of two evils.”If Greece and Ireland and Portugal are priced to restructure, is it not easier for Ireland then to draw a line and say, rather than go through effectively being controlled by Berlin and Brussels for the next two electoral cycles perhaps, is it easier just to take a haircut and then return to the bond markets? That would be the far less painful option,” he said.The markets want the current crisis to “morph” into some sort of “cohesive fiscal policy” in the eurozone, said Sian, and if that happens then the Greek deal will create an acceptable default “template” for Ireland and Portugal.”The next question for the market will always be who’s next. And putting aside Ireland for a minute – Portugal will be next [to default]. Unlike Ireland it doesn’t have a growth trajectory, it needs a huge amount of reform, the kind of stuff that went through in the 80s in Ireland. And that takes years and years to come back from, so the possible credibility there is quite limited. So we see Portugal being priced to restructure at some point.This opens up two possibilities for Ireland in 2013, he said – write off some of the debt or go solo and continue for another five years with austerity.”Ireland sticks to its guns – and I think the point about the willingness to go through with the austerity measures is very, very important – if the debt GDP ratio is coming down, the government may decide, or, the electorate may decide, more importantly, that they can get through it and it may take another five years from 2013 to get back to the debt markets. I think it will take that long.”His remarks come just days after Ireland’s prime minister Enda Kenny insisted the country would not be defaulting on any of its debt or seeking a second bailout in the event that it would not be able to return to the market.He said the IMF programme to reduce Ireland’s debt won’t ever satisfy the markets, even if Ireland achieves every single target in the four-year programme including a “reasonable” growth in GDP of 4%.”The problem is this adjustment [to get debt and deficits down] is likely to take several years and the market just doesn’t have the appetite to wait that long.”He said Ireland had a lot of positives – it was definitely not like Greece, which he described as “a corruption story” where “governance is more akin to something you would find in Africa than in western Europe”.But he believes Ireland’s future will nonetheless be bound up with Greece and Portugal.”What we’ve had over the last six months is a putting up of the barricades around Europe to limit the fiscal contagion on to countries such as Germany, Netherlands, Austria and Finland.”This, we believe is the beginning of a more systemic crisis in the eurozone, it is not really an Ireland-specific story, but where it will lead, we believe, is to a continued discussion about haircuts with regards to Greece.
Greece will provide template for Ireland
“There will be nothing involuntary before [July 2013] – this is what Angela Merkel has told us and we take her word on it. After that, we think the politics dictates that Greece will have to take a haircut and that template would be seen by investors as a signal for political cohesion but also a template for Portugal and Ireland.So ultimately we’ve had a very negative view on just where the Irish debt markets will be and much of the reasoning behind that is actually external to Ireland. “
Ireland will be attractive to investors soon, says Deutsche
Conor Hennebry, director of capital markets and treasury solutions at Deutsche Bank, who also spoke at the event, is less pessimistic about Ireland’s chances of returning to the markets.He said Ireland’s good behaviour in relation to austerity was attractive.”Now is quite a good time to be an improving but still risky story. Investors are very keen on yield, they are very keen on finding places they can earn more than the tiny amount they can get from the world’s central banks from overnight money.”Hennebry said as long as Ireland showed willingness to get its house in order, there wasn’t another banking catastrophe and the Blackrock stress tests weren’t proven to be wrong this time next year, Ireland would be in a good position to borrow again.But he warned that Ireland would “need to be very rigorous, not just as a government, but as a society if it is to access the bond markets again”.The one glimmer of hope that “may do the trick” of expediting growth, Sian believes, is a recovery in property prices – but that is a “very long bet”.”For us, that [property recovery] is a 2014/15 story, so too far forward really to have a meaningful impact,” he says.