Business Irish

Friday 22 September 2017

AIB bond at premium as Greek volatility impacts

Emmet Oliver

AIB, the country's largest bank, has raised €1.5bn in fresh funding but had to pay a premium for the finance as credit markets remained stressed, said analysts.

The bank said it was pleased with the final result which involved AIB paying 130 basis points over the mid-swap rate for three-year money.

"AIB is being forced to pay a premium compared to Bank of Ireland and this can also be seen in how the credit default swap (CDS) market is pricing risk for the two banks," said Oliver Gilvarry, head of research at Dolmen Stockbrokers.

While the bond issue is backed by the government guarantee, the bank was forced to undertake the issue on a day when credit markets were highly stressed because of concerns over a potential default by Greece.

Apprehensions about Greece have impacted on other peripheral European economies as well as Ireland, and there has also been spillover damage to banks in those countries.

The bank said that 120 funds and asset managers had subscribed to the issue from a variety of countries. Irish banks have been drawing in investors from further afield in recent weeks, with Bank of Ireland saying some of its bonds were issued to investors in Singapore.

The AIB money was raised as part of the guarantee introduced in the Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009. The guarantee is unconditional and irrevocable.

Ireland's lenders still face a massive task in refinancing more than €24bn of bonds that fall due at the end of September -- potentially putting them in direct competition with the State which needs to plug a €20bn deficit in the Budget.

Analysts at the Royal Bank of Canada last year famously dubbed the Irish banks' September debt maturity deadline as the "wall of worry".

Irish Independent

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