NTMA publishes 2021 midyear update

The National Treasury Management Agency (NTMA) has today published its 2021 mid-year business update alongside its 2020 Annual Report.

 

 

  • Average interest rate to fall to record low of 1.5pc in 2021 as interest bill is set to drop below €3.5bn
  • Debt interest costs to remain below €4bn until 2025, whilst refinancing risk post-2025 may be overstated
  • Strategy of locking in low rates for long terms provides significant insurance that will be valuable in a potentially changing interest rate environment in the years ahead
  • ISIF reports significant upward revision of 2020 investment performance, increasing annualised investment returns from 6.2pc to 8.8pc
  • Increasing scope for social housing PPPs as 2020 marks a landmark year for PPP delivery
  • COVID-19 related indemnity and risk management issues remain a major focus for the SCA
  • The number of commercial State bodies designated to NewERA increased from 7 to 18

 

Comments by Conor O’Kelly, NTMA Chief Executive:

  • “The extent of refinancing risk we face post-2025 may be overstated, as we have one of the longest average maturities in Europe and our issuance strategy over the past number of years will give us significant protection in a potentially changing interest rate environment.
  • The average interest rate on Ireland’s debt will fall to a record low of 1.5pc this year as the interest bill drops below €3.5bn. It is expected to remain below €4bn per year until 2025 at the earliest.
  • Our strategy of locking in low interest rates for long terms provides valuable insurance for many years to come against possible rising interest rates.
  • On average only 5pc-7pc of the stock of debt will be refinanced each year over the next decade.
  • Ireland’s borrowing position remains strong. It is benefitting from ongoing ECB support to underpin issuance by eurozone sovereigns, the strategy of locking in low interest rates for long terms, and the return to fiscal surplus pre-pandemic.
  • We are also reporting that ISIF’s investment gains during 2020 were significantly higher than previously estimated, with an annualised return of 8.8pc, up from the 6.2pc we guided earlier this year and generating investment gains for the year of over €700m, ahead of the previously guided €500m.
  • 2020 was a landmark year for PPP projects in both education and social housing. These contracts have proven extremely robust in recent years. We see scope to increase the use of this delivery channel, which is particularly attractive in the low interest environment that we have today.
  • COVID-19 related work was a major focus for the SCA in 2020 as it worked closely with the Department of Health, the HSE, the Department of Education and other State bodies on a range of complex indemnity and risk management issues. In addition, despite the COVID restrictions, the SCA continued to resolve general and clinical claims with over 3,200 claims being resolved in 2020.
  • Advising Government Ministers and Departments on the financial impact of COVID-19 on the commercial State bodies in NewERA’s remit was a key focus for NewERA in 2020 and continues to be so in 2021.”

Comment by the Minister for Finance, Paschal Donohoe TD:

  • “I am happy to welcome the publication of the NTMA’s Annual Report and Accounts for 2020. During an extraordinary year, the NTMA staff have played an important role in the State’s response to the challenges of Brexit and COVID-19. The headline figures presented today demonstrate the fruits of their labour and showcase the NTMA’s contributions to the State.
  • The NTMA is vital to the sustainability of the public finances, as can be seen by their continued stakeholder engagement throughout the pandemic having maintaining the demand for Irish debt.
  • The ISIF has provided financial support to businesses directly impacted by COVID-19 which will support the economic recovery. NewERA has provided vital financial, commercial and governance advice to numerous State bodies in respect of COVID and climate action. The NDFA has helped move the Grangegorman campus of Technological University Dublin to completion and their work on procurement and project delivery management has mitigated the financial impact of COVID on capital investment projects.”

2021 mid-year business update and 2020 annual report – key points

Funding and Debt Management

  • The average interest rate on Ireland’s debt will fall to a record low of 1.5pc this year, as the interest bill drops below €3.5bn. Debt interest costs are expected to remain stable in the period to 2025, at below €4bn per annum.
  • The relatively long average life of the medium/long-term debt portfolio (11+ years) means that our refinancing requirements are relatively limited in the years ahead, reducing refinancing risk in a period when interest rates are expected to be higher than current levels.
  • On average only 5pc-7pc of Ireland’s debt stock falls due for refinancing each year over the next decade.
  • The average yield on bond issuance during 2020 was 0.2pc at a weighted average maturity of 11.5 years.
  • So far in 2021 the NTMA has issued €13.25bn in benchmark bonds at a weighted average yield of 0.15pc and a weighted average maturity of 14.6 years, representing almost 75pc of the mid-point of the target range of €16bn-€20bn.

Ireland Strategic Investment Fund (ISIF)

  • Total annual return revised from +6.2pc to +8.8pc.
  • Annual gains revised from more than €500m to more than €700m.
  • ISIF has generated €1.7bn of value added between inception in 2014 and end 2020.
  • ISIF delivered investment returns of over €700m during 2020, with over 90pc of these gains driven by investments in venture capital and growth equity vehicles.
  • During 2020, at the Minister’s request ISIF made €2bn available for deployment in businesses affected by the COVID pandemic.
  • ISIF made 20 investments totalling €400m in 2020, bringing total ISIF commitments to €5bn across 143 investment and €8.6bn of co-investment commitments since inception, a co-investment multiple of 2.7x.
  • So far in 2021 ISIF has approved a further €400m in investments as the economy shifts from stabilisation to recovery.

National Development Finance Agency (NDFA)

  • A landmark year for PPP project delivery in education and social housing.
  • Construction completed on two large academic buildings on the Technological University Dublin campus in Grangegorman, which will accommodate 10,000 students and 700 staff.
  • Approx. 1,500 social housing homes being delivered through PPP projects.
  • Scope to increase the use of the PPP delivery model, which has a proven track record in Ireland of successful delivery and risk transfer to the private sector.
  • PPPs are particularly attractive in the current low interest rate environment.

State Claims Agency

  • Managing over 12,000 active claims against State bodies with an estimated outstanding liability of more than €4bn.
  • The SCA resolved over 3,200 claims in 2020 despite the impact of COVID restrictions which resulted in the courts being effectively restricted to trials in respect of urgent personal injury claims for most of the year. Excluding mass actions, the ratio of claims resolved to claims received was 0.98.
  • The SCA continued to pursue mediation as an alternative to the formal court process through 2020, particularly with regard to complex clinical claims. 25% of claims concluded by the clinical claims team in 2020 where damages were paid involved a mediation process.
  • 53pc of cases resolved in 2020 were resolved without court proceedings being served.
  • COVID-19 related work was a priority in 2020 and the SCA worked closely with the Department of Health, the HSE, the Department of Education and other State bodies on a range of complex indemnity and risk management issues.

NewERA

  • Key focus on assessing and advising on the financial challenges arising for the commercial State Bodies affected by the COVID pandemic.
  • Provided financial and shareholder advisory services on 144 separate assignments, with considerable activity deriving from climate action and Ireland’s transition to a low-carbon economy.
  • 11 commercial State bodies in the transport sector were recently designated to NewERA, bringing the total number of commercial State bodies designated to NewERA to 18.

Article Published: 22/06/2021