September 12, 2017 / 2:49 PM / 10 months ago

Euro zone rescue fund ESM plans first dollar bond in October or November

LONDON (Reuters) - The euro zone’s bailout fund, the European Stability Mechanism (ESM), could sell its first dollar-denominated bond as early as next month, its head Klaus Regling said on Tuesday.

European Stability Mechanism Managing Director Klaus Regling speaks during a news conference at the Foreign Correspondents' Club of Japan in Tokyo, Japan, January 26, 2016. REUTERS/Yuya Shino

Regling said expanding out of issues in the euro would help the ESM attract new buyers for its debt and hopefully shave down what are already ultra-low borrowing costs.

“What is new in the last quarter of this year, maybe October or November, is that for the first time we will issue a bond that is not denominated in euros,” Regling told Reuters.

“The ultimate objective is to lower our funding cost after hedging,” he said, the idea being the broader the investor base, the higher the chance of getting the cost down.

The ESM and its predecessor, the European Financial Stability Facility (EFSF), were created during the euro zone sovereign debt crisis and have so far disbursed 272.5 billion euros ($325 billion) in emergency loans to Ireland, Greece, Portugal, Cyprus and Spain.

Its triple-A credit rating means it already borrows at an average of around 1 percent, but it would like to get them as low as possible so it can pass on the savings.

Following extensions of Greece’s bailout loans, it also wants to refinance its existing bonds so there is less of a mismatch between its own financing and how long its loans run for.

“We want to help the borrowing countries to regain their debt sustainability, so the lower the interest rate they have to pay to us, and we have to pay to the market, the better,” Regling said.

Regling didn’t say what maturities the bonds would be, though a banker working on the deal who requested anonymity told Reuters that a three- or five-year offering was the most likely.

It has taken the ESM roughly two years to be in a position to issue in dollars and organize ways to hedge the risk of borrowing in another currency.

It could move into other currencies, too. “Legally we are allowed to do that,” Regling said, though nothing is on the immediate horizon.

Far more significant changes could also be in store. Last week French President Emmanuel Macron backed Germany’s idea of a European Monetary Fund (EMF) to counter economic shocks in euro zone member states.

German finance minister Wolfgang Schaeuble has proposed using the ESM for the job, giving it more powers to support weaker members, monitor bailout programs and even grant it the powers to backstop troubled banks.

Additional reporting by Abhinav Ramnarayan; Editing by Hugh Lawson

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