Bank of Ireland Plc, the nation’s largest lender by assets, may tap shareholders again for cash within months as it seeks to repay 1.8 billion euros ($2.4 billion) of its government bailout.
Chief Executive Officer Richie Boucher said this week he’ll tell investors as soon as possible how it will refinance state-owned preferred shares that mature in March. A share sale may happen by the year-end, according to Emmet Gaffney, a Dublin-based analyst with Investec Bank Plc. (INVP)
“They’re most likely to launch a rights issue before the year is out, as there are risks to waiting until next year and the market conditions may not be as favourable,” said Gaffney, who has a hold rating on the stock. The bank may sell other securities, such as subordinated debt, as well as the shares to help plug the shortfall.
The government stepped in to save the bank, along with the rest of the country’s financial system, in 2009 after a real-estate bubble burst. If Boucher doesn’t raise the 1.8 billion euros and pay off the state, the amount the lender owes the government will rise 25 percent to 2.25 billion euros.
“It’s a key priority for our business,” the bank said in an e-mailed response to questions, adding it’s looking at a range of options.
The preference shares are a legacy of the state’s initial 3.5 billion-euro state rescue of Bank of Ireland (BKIR) in 2009. While the lender is alone among the country’s six largest in avoiding majority state control, Prime Minister Enda Kenny’s government still controls a 15 percent stake in the bank.
Taxpayers would have been left with about half of Bank of Ireland following a share sale in July 2011, had the government not agreed at the time to sell a 35 percent interest to five investors, including Wilbur Ross’s WL Ross & Co. and Toronto-based Fairfax Financial Holdings Ltd.
The main channel for raising the cash the bank now needs will be another share sale, analysts said. Shares in the bank have doubled to 22.9 cents per share this year, amid signs that the economy is stabilising.
Dublin home prices rose 8 percent in July, the most in more than six years, the Central Statistics Office said Aug. 20. Ireland’s unemployment rate, which trebled over four years to a 15 percent peak in March last year, fell to 13.4 percent in July.
“The stock has largely been seen as a proxy for the Irish recovery, so there should be good appetite” for a share sale, said Scott Sheridan, an analyst in London with Nomura (8604) Holdings Inc., which sees the bank issuing 1 billion euros of shares “as a base case” by end-March.
Boucher told reporters in Dublin on Aug. 2 that he’s relaxed about industry stress tests to be carried out across Irish and European banks next year, having carried out a “rigorous” internal capital assessment. In all, Boucher has raised almost 10 billion euros of equity capital since 2009 to absorb loan losses though share sales and inflicting losses on junior bondholders.
The Finance Ministry, Ross and Paul Rivett, president of Fairfax, declined to comment on the bank’s plans or on their respective possible appetite on whether they will buy stock in any offering.
The government is unlikely to buy shares because it’s focused on trying to recoup the money it ploughed into the country’s banks, said Gaffney at Investec.
“By not taking up its rights, the government’s shareholding would reduce and may make it easier to place in the market down the line,” said Gaffney.
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