Eurozone bailout fund ESM considering non-euro bond issuance

The euro zone permanent bailout fund, the European Stability Mechanism (ESM), may issue bonds denominated in other currencies than the euro next year to attract new investors, the ESM's Managing Director Klaus Regling said on Thursday. The 500 billion euro fund was created during the euro zone sovereign debt crisis as a backstop for governments cut off from markets. It can lend to distressed sovereigns in exchange for a programme of strict reforms.
"We are looking at a possibility of raising funds in other markets in other currencies. So far, all our activities are in Europe," Regling said. Such foreign issuance would help the ESM attract new investors for example from among those US hedge funds that invest only in instruments denominated in dollars and similarly with Japanese investors.
He said that all future lending from the fund will remain in euros, so if the ESM raises funds in foreign currencies, it will have to hedge and need additional instruments.
"So we are looking into this possibility, but we do not intend to do anything of this sort this year," Regling said.
Ireland, Portugal, Greece, Spain and Cyprus have received conditional loans of 230 billion euros from the ESM and its predecessor, the European Financial Stability Facility (EFSF) since 2010. The EFSF has stopped providing new loans in July 2013 and the ESM became the only institution to deal with potential emergency financing requests from euro zone countries.
Ireland, Spain and Portugal have successfully exited their bailout programmes, with Lisbon being the latest one in May.
Greece and Cyprus are the two remaining euro zone countries receiving financial assistance from the EU and the International Monetary Fund.
"In the case of Greece all interest payments are deferred for 10 years. Greece has saved 4.7 percent of GDP in 2013, or 8.6 billion euros, due to its EFSF programme when compared to the assumed market cost of funding," the ESM said in its annual report. "ESM and EFSF loans have allowed programme countries to reform and regain investor confidence. It is now of key importance that countries continue delivering on their reform agenda," Jeroen Dijsselbloem, who chairs the meetings of euro zone finance ministers, said on Thursday.
The ESM has 80 billion euros of paid-in capital and 620 billion euros of callable capital, which makes it the biggest institution of its kind in the world.
Because it has to invest its 80 billion euro capital to preserve its value, it was also one of the big world investors in the world now, Regling said, adding the ESM investment strategy was very cautious.