Ireland's Biggest Companies Begin to Feel Chill Wind of `Brexit'

The Global Implications of a Brexit
  • Ryanair, C&C, Bank of Ireland among biggest potential losers
  • Company woes may foretell wider pain for Irish economy

Ireland’s largest companies are beginning to feel the effect of Britain’s division over whether to remain in the European Union, and it may be a taste of what’s to come for the rest of the nation.

Concern about the outcome of the U.K. referendum in June has helped push the pound down about 11 percent against the euro since November. About 60 percent of Irish companies selling goods overseas are already affected, according to a national trade association.

“Sterling has deteriorated and that’s tough for Irish exporters,” Richard Pym, the English-born chairman of Allied Irish Banks Plc, said in an interview in Dublin this month. “Upon Britain leaving EU, one would anticipate that sterling would come under pressure again. ”

Almost 100 years after the rebellion that eventually led to Ireland’s breaking from the U.K. in 1922, Britain remains its biggest trading partner. A London School of Economics study last week showed Ireland would be hit the most by a U.K. exit from the EU.

Peripheral Bonds

With European Central Bank President Mario Draghi acting as the backstop, 10-year Irish bond yields have plunged to 0.82 percent, below those of the U.K., Spain and Italy. What’s become known as “Brexit,” though, is probably the single biggest risk facing the economy, the fastest growing in the euro region.

The question is over the EU’s integrity, according to Guillermo Hermida, who oversees 41 billion euros ($45 billion) at CaixaBank Asset Management in Madrid. Cracks in the bloc would undermine investor confidence in its weakest members, the so-called peripheral nations, he said in an interview in the Spanish capital. They include Ireland.

Dublin-based Permanent TSB, a bank that’s still trying to recover from Ireland’s financial crisis, said this month that concern about Britain’s membership in the EU is hampering its efforts to sell 2.4 billion pounds ($3.4 billion) of U.K. loans.

“‘Brexit’ risk has caused me to slowdown the process because I think we’re on the wrong side of the line,” Jeremy Masding, the bank’s chief executive, told analysts. “I want to wait until I see what the result of the referendum is and then see how the markets react.”

Weaker Pound

Dublin-based Dalata Hotel Group Plc, which operates in London, Manchester and Leeds, warned this month that the U.K. might generate less revenue as sterling slides.

Ryanair Holdings Plc gets about 27 percent of its sales from the U.K. and will be the biggest Irish loser along with drinks company C&C Plc and agricultural products company Origin Enterprises, according to securities firm Investec Plc.

““We don’t think it would have an immediate impact on our business,” Ryanair’s chief marketing officer, Kenny Jacobs, said in an interview with Bloomberg Television. “In the medium and longer term, it would create some uncertainty if Britain were outside of Europe.”

It’s not all bad news for Ireland, with Dublin presenting an “obvious choice” for financial companies seeking to relocate following a U.K. exit from the EU, the nation’s debt office said in a presentation last week.

“Estimates suggest some 6 billion euros of FDI might be attracted to Ireland in the case of Brexit,” the debt office said.

Not all Irish companies will lose out from a depreciating pound, and Paddy Power Betfair Plc, DCC Plc and Grafton Plc could even gain. All three have substantial operations inside and outside the U.K. and they now report their earnings in pounds.

“I’m not going to lose sleep” over the referendum, Gavin Slark, chief executive of Grafton, which supplies equipment for builders, said in an interview.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE