AIB €4.6bn asset sale prompts upgrade to 'buy'
Published 08/04/2010 | 05:00
Allied Irish Banks should raise €4.6bn from the sale of its interests in Britain, the United States and Poland, according to analysts at Royal Bank of Scotland, which has upgraded the stock to outright 'buy' in the belief it can escape majority state ownership.
This leaves a €2.8bn gap, which will have to be filled by selling shares or converting some of the State's indirect investment in AIB into ordinary stock -- as the bank races to hit new regulatory capital targets by the end of the year.
But RBS believes AIB will not be able to sell its UK business, which consists of a business banking operation and the group's First Trust retail bank in the North.
This sell-off would shave about €700m off the disposal gains.
"We have never considered the sale of the UK business as a key component to AIB's 'self help' plan and we continue to hold that belief," said the RBS analysts, who were led by Asheefa Sarangi.
"We think AIB's UK business is unlikely to attract a great deal of buyers at this stage," Ms Sarangi said, pointing out that the UK-based unit's balance sheet is "quite weak from both a liquidity and funding perspective".
Still, RBS reckons AIB will be able to achieve a 20pc premium to current market prices for its 70.2pc-owned Polish unit Bank Zachodni WBK, which the group had resisted putting up for sale until now.
Stripping out any benefit from a sale of the UK business, RBS still believes AIB can raise €3.9bn from asset sales.
This would leave a €3.5bn shortfall from the €7.4bn it has been directed by the new head of financial regulation, Matthew Elderfield, to raise by the end of 2010.
Crucially, RBS believes the bank can avoid majority state ownership by launching a €1.75bn 'rights issue' later this year and asking the Government to convert a similar value of its €3.5bn of preference shares in the group into ordinary stock.
On the broker's calculations, the State would be left with a 42pc direct stake on AIB.
The Government currently holds the right -- or warrants -- to take a 25pc stake in the bank in four years' time, but this will be diluted down to 7pc by the issuance of €3.5bn worth of new shares.
AIB would do well to follow Bank of Ireland's lead and try to buy back the warrants this year at market price, it said.
Meanwhile, RBS upgraded its stance on BoI from 'sell' to 'hold' ahead of the group's upcoming bid to raise €2.7bn of capital.
This is expected to be done through a 'rights issue', debt-for-equity swap and conversion of some of the Government's preference shares into ordinary stock.
Taxpayers are expected to end up with about a 40pc stake in BoI as a result.
"The Government has clearly thrown its support behind Bank of Ireland, which is why we deem it as the 'chosen one'," RBS said.