UPDATE 2-European Union readies EUR2.3bn bond

By Natalie Harrison and John Geddie

LONDON, June 18 (IFR) - The European Union intends to raise EUR2.3bn in the bond market by the end of July after bringing forward its funding plans for Ireland earlier this month, the Triple A rated borrower confirmed on Monday.

The putative bond, which will contribute towards the aid package for Ireland, will be followed by another EUR3bn fund raising in September. Portugal will receive EUR2bn from the second debt offering, while Ireland will receive EUR1bn, the EU said.

That will leave the EU, which has already raised EUR10.5bn so far this year, with EUR4.7bn to raise for Ireland and Portugal next year, of which EUR800m will be used for Ireland and EUR3.9bn for Portugal.

"It was an operational decision to change our funding plans for this year. We did not have much left for funding in 2012, and so in co-ordination with the EFSF (European Financial Stability Facility), this made sense," said Herbert Barth, the European Union's senior borrowing advisor.

"It has not changed the overall amount to be raised under the EFSM (European Financial Stability Mechanism), but just means that we will raise a bit more this year, and less next year."

The EFSF has EUR4.1bn and EUR10.2bn to raise respectively this year for Ireland and Portugal, according to its latest investor presentation, which was updated in June. A breakdown of that data shows EUR2.8bn and EUR1.3bn will be raised for Ireland in the second and fourth quarters respectively.

For Portugal, EUR5.2bn, EUR3.4bn and EUR1.6bn are needed for Portugal for the second, third and fourth quarters.

RFPS IN THE WORKS

The EU was not expected to return to bond markets until September after it completed a EUR4.5bn fund raising target in May. The issuer said at the time that it only had another EUR2bn to raise, divided roughly equally between Ireland and Portugal.

The EU is expected to send a request for proposals (RFP) by the end of this week to banks, with the aim of selling bonds with a maturity of 10-15 years, banking sources said. The EU said further preparations needed to be made before a bond mandate could be announced.

The EU was last in the market in May when it raised EUR2.7bn from a 10-year bond, used towards the aid package for Portugal, which printed at mid-swaps plus 56bp. That bond has since tightened to 48.1bp over mid-swaps, according to Tradeweb.

The EU's fairly limited funding needs compared to the European Financial Stability Facility (EFSF), is one of the factors that has underpinned strong investor demand for EU bonds. May's 10-year bond attracted an order book of EUR7.8bn. The EFSF has approximately EUR30bn left to raise in 2012.

Ireland requested an EUR2.3bn disbursement on May 30 after completing its sixth review as part of its EUR85bn bailout.