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BoI raises E580m in Govt payoff move

Wednesday, December 04 16:07:27

Bank of Ireland today said it has successfully raised E580m in a share placing that will help it pay the State back E1.8bn it received to stave off a capital crunch at the height of the crisis.

The bank's plan to redeem preference shares issued when the 15pc state-owned lender was rescued in 2009 will cut its reliance on the government less than two weeks before Ireland is set to become the first euro zone country to exit an EU/IMF bailout.

A total of 2,230,769,231 units of Placing Stock were successfully placed at a price of 26 cents per new unit of ordinary stock, raising gross proceeds of E580 million.

The Placing Stock represents approximately 7.4pc of the Bank's issued ordinary stock prior to the Placing, the bank said in a statement to the markets this afternoon.

The deal also follows a steady stream of more positive economic news in Ireland, including the fastest fall in unemployment in four years, that convinced Dublin to make a clean break from its bailout programme.

BoI, the only Irish lender to escape nationalisation, had faced a March 2014 deadline to pay back the state before a clause under its 4.8 billion euro bailout increased the cost of buying the shares back by 25 percent, or 450 million euros.

The equity placing will redeem 537 million of the shares with the results to be announced later on Wednesday. The remainder will be repaid through the issuing of debt secured on the preference shares, the bank said.

The redemption will also remove dividend restrictions imposed by the European Commission on state aid grounds.

"A successful refinancing of the government preference shares represents a significant step for BoI back to normalised operating conditions, giving the bank and its shareholders more control over the group's strategy," said Ciaran Callaghan, an analyst at Merrion Stockbrokers.

The bank said the new shares would equate to a maximum of 9.99 percent of its existing stock, breaking with stock market norms of a company not issuing new shares worth more than 5 percent of its stock market value without a special resolution from shareholders.

Companies are able to issue stock worth up to 10 percent of their equity if they use a financial structure known as a "cash box", where the new equity is channeled through a specially created company. Bank of Ireland would then buy the cash box.

The bank added it had advised the Irish central bank that it is does not intend to recognise the preference shares as common equity Tier 1 (CET1) capital after July 2016, indicating it is confident it can make enough of a profit to retire the instrument by then.

Shares in the bank, up almost three-fold over the past 12 months, were 1.49 percent lower at E0.27 by 10am.

BoI's announcement comes after the bank's capital adequacy ratios suffered a sharper than expected drop after the Irish central bank said on Monday it needed to make extra loan-loss provisions after an industry-wide review.

BoI, recovering faster than rivals hampered by larger loan losses and weaker margins, said it was not required to raise additional capital after the review and was in talks with the central bank about its estimates.

The review, one of the final conditions of Ireland's 85 billion euro bailout, took place ahead of euro zone-wide stress tests next year, Irish lenders' first health check since 2011.

Bank of Ireland escaped falling into full state control after the last stress tests, when a group of North American investors led by Wilbur Ross and Prem Watsa bought a 35 percent stake just months after Ireland signed up to its bailout.

The state sold a 1 billion euro contingent convertible bond or coco it held with the bank earlier this year and will be left with a residual equity stake of around 14 percent if, as expected, it chooses not to take part in the placement.

Finance Minister Michael Noonan said the deal would generate a profit for the taxpayer on the shares, with the exact return depending on the outcome of the book-building exercises for both transactions.

"As we exit our EU/IMF programme on December 15, this transaction will build further confidence in Ireland's recovery and will strengthen Ireland's return to normal market funding," Noonan said in a statement.

"The Irish banking system is recovering, international investors are returning and this has positive implications across the banking system."

Bank of Ireland mandated Credit Suisse, Davy, Deutsche Bank and UBS as placing agents, with Bank of America Merrill Lynch joining as joint lead managers and underwriters for the debt sale to private investors.