UK poised for 2bn pounds Eurobond issue

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THE Government is thought to be on the point of launching a Eurobond issue in German marks that could be as large as DM5bn ( pounds 2bn).

It would be part of the second stage of a plan announced last month - before Britain left the ERM - to boost the reserves to defend sterling.

The Treasury confirmed yesterday that the borrowing programme would be going ahead, despite Britain's departure from the ERM, but it said no decision had been made on the currency, instrument or maturity.

There were strong rumours in the markets yesterday that a five- year Eurobond issue could come as early as next week.

The Government said when it announced its plans in September that it would complete the ecu10bn borrowing by the end of this month. Half has already been arranged in a series of multi-currency short-term deals with banks.

A large number of investment and commercial banks, rumoured to include Deutsche and Dresdner of Germany, have been beating a path to the door of the Bank of England to canvass proposals.

It would be the largest issue so far in Euromarks, a relatively unsucessful market that would be boosted by a UK government issue.

The market has already had one success this week with a DM2bn Swedish government issue.

But it is not a foregone conclusion that a German bank will be chosen against competition from US and other European investment banks.

The final decision on how to borrow the money will be taken by Norman Lamont, the Chancellor, in consultation with the Bank of England.

Because the Government has made a commitment to convert foreign currency it borrows back into sterling, a Euromark issue would count towards financing of the public sector borrowing requirement. The effect would be the same as issuing a gilt-edged stock denominated in marks.