Ireland to Sell at Least Half its Bank of Ireland Notes
Ireland’s government said it sold its entire 1 billion euros ($1.3 billion) of so-called contingent convertible capital notes in Bank of Ireland Plc as investors bid for almost five times the amount on offer.
The sale was completed at a 1 percent premium to par value, and the proceeds will be used to lower the nation’s debt, Finance Minister Michael Noonan told reporters in Dublin today. The government received 4.8 billion euros of orders for the notes, which are a form of fixed-income security that convert into stock automatically if capital levels fall.
Noonan said the state intends to sell its almost 7 billion euros of remaining non-equity investments in Irish banks “in time,” with CoCos in state-controlled Allied Irish Banks Plc (ALBK) the next potential offering. The government acquired the CoCos in Bank of Ireland (BKIR) in July 2011 as part of a 5.2 billion-euro recapitalization of the nation’s lenders.
“The sale of the Bank of Ireland (BKIR) notes, and indeed the demand for them, gives comfort that the market’s perception of risk that Irish banks need further capital is reducing,” said Stephen Lyons, an analyst with Davy, a Dublin-based securities firm.
The CoCos sold today automatically convert into equity if Bank of Ireland’s core Tier 1 ratio, a measure of financial strength, falls below 8.25 percent.
Ireland has committed 64 billion euros of capital to its banks over the past four years as their bad loan losses soared following the collapse of a domestic real-estate bubble. Today’s sale lowers the bill to 63 billion euros.
Bank of Ireland is the only one of the country’s six largest lenders to have moved on from state control. The government sold a 34.9 percent stake in 2011 to five investors, including Toronto-based Fairfax Financial Holdings Ltd. (FFH) and WL Ross & Co., a New York-based investment firm. The lender remains 15 percent state-owned.
U.S. billionaire Wilbur Ross, the chairman and co-founder of WL Ross, said today’s move is a “major step toward the complete privatization” of the lender.
“The austerity of recent years has been very difficult for the Irish people, and reopening the capital markets to both the sovereign and the banks is essential to the ultimate recovery from the crisis,” Ross said in an e-mailed response to questions.
Ireland is three-quarters of the way through budget cuts that amount to about a fifth of the size of the economy. The austerity program is stretched over eight years through 2015.
Bank of Ireland’s core Tier 1 ratio was 14.9 percent at the end of June, according to its interim report.
Eamonn Hughes of Goodbody Stockbrokers said he expects the ratio to fall as low as about 12 percent this year, based on so-called Basel capital rules.
Bank of Ireland hired Deutsche Bank AG, UBS AG and Dublin-based Davy to manage the secondary placement of the CoCo notes, which pay a coupon of 10 percent.
“This is good news for Bank of Ireland -- and Ireland,” said Paul Smillie, a Singapore-based global banking analyst at Threadneedle Asset Management, which oversees about $45 billion of fixed-income securities.
Ireland’s National Treasury Management Agency yesterday sold about 2.5 billion euros of bonds in its first sale through a banking syndicate in three years. The general government debt stood at 169.2 billion euros at the end of December, according to the NTMA.
Bank of Ireland sold its first public debt in two years on Nov. 13, raising 1 billion euros through the issuance of residential mortgage-backed bonds. It sold 250 million euros of subordinated debt in December.
Bank of Ireland shares were unchanged at 13.5 cents at the 5:10 p.m. close of trading in Dublin. They have gained 65 percent over the past year.
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