Eesti Pank may start buying public enterprise bonds

Photo: SCANPIX

Though the «money printing» program proclaimed by European Central Bank involves government bonds, Eesti Pank will not exclude bond purchases of public corporations such as Eesti Energia and Elering.

Eesti Pank president Ardo Hansson said the base scenario is for central banks in every country to start purchasing government bonds of their state. Estonia has no government bonds, thus Eesti Pank will have to purchase some other securities.

«An option is to purchase some measure of the so-called European supranationals like the bonds of European Investment Bank or EFSF (European Financial Stability Fund – edit),» said Mr Hansson. «As we cannot purchase these for the entire program, the question remains if we can buy bonds of Estonian public undertakings or government bonds of some other countries. This is still being discussed, but I think these bonds might be bought,» he added.

Bonds have been emitted by two enterprises held by Estonian state – Eesti Energia and Elering – and these trade at London Stock Exchange.

Eesti Energia has emitted Eurobonds two occasions with total value of €700m, Elering’s one emission’s volume is €225m. Thus, if it is agreed at European Central Bank (ECB) that the bond-buying program extends to public enterprises as well, Eesti Pank might purchase securities of said two companies for the total of €231.25m.  

Alas, the volume of two enterprises’ bonds that our central bank may purchase is rather small. The thing is, the amount of one country’s bonds purchased may not exceed 30 percent of the total bonds volume, and only a quarter of one emission may be bought.

The volume of the bond-buying program proclaimed by ECB is €60bn a month, totalling €1.14tr. The sum also includes the commercial bonds purchasing program launched a few months ago; Mr Hanson said the volume of that is eight to ten billion euros a month.

Thus, ECB will be buying government bonds for the worth of €50–52bn a month; of that, Eesti Pank’s share is €136.95–142.43m, which will amount to €2.6–2.7bn for the entire time period. Therefore, even with a positive scenario, Eesti Pank could only buy local securities to the volume of 1.5 months only.

Mr Hansson underlined that the program is naturally not risk free. «It is never 100 percent guaranteed that these bonds are serviced i.e. interests paid. Therefore, we have been trying to boost our risk buffers,» said the Eesti Pank president.

Riigikogu Finance Committee member Aivar Sõerd (Reform Party) has expressed fears that the central bank may even come to need extra money.

«As the major part of risks will be on the member states central banks, a need will arise to also increase reserves and to be ready for possible losses should some state that sold its bonds will run into difficulties,» said Mr Sõerd, a former finance minister. «Should Eesti Pank’s own reserves or profits prove insufficient, these can only be complemented out of state budget.»

As also admitted by Mr Hansson: with Eesti Pank balance sheet total increasing, risk will go up.  

«Too early to tell right now, but I think that as we face these numbers then, it will be prudent to create additional buffers,» said Mr Hansson. «Actually, for two years already we have been trying to create these additional buffers and this will definitely continue,» he added.

Asked if the government would better not expect its yearly central bank profit distribution this year, the president, said that would depend on the central bank’s earning on these bonds.  

«As long as we have the buffers and the capitalisation is strong enough, we need not have fears – short-time at least – that state budget has to be tapped,» said Mr Hansson.