BoI forced to sell assets in plan to raise €3.2bn capital
New Ireland and BIAM for sale as Bank of Ireland close to restructuring deal agreement
Published 17/04/2010 | 05:00
Bank of Ireland (BoI) is this weekend hammering out key details of a €3.2bn capital-raising plan, after agreeing with Brussels to sell off some flagship assets, including its life, asset management and ICS Building Society arms, as a condition of receiving state aid.
It is believed BoI boss Richie Boucher and his advisers are hoping to press the button on the hugely-complex, four-strand deal as early as Monday, April 26.
BoI's board was convened four times in as many days this week as negotiations on its EU restructuring plan -- through top Department of Finance officials -- hit a crunch stage. While the final sanctions are not expected until January, the bank is confident it will be in line with the disposals and other measures outlined yesterday.
Following a 24-hour flurry of activity between Brussels and Dublin, Bank of Ireland revealed it will sell its:
lNew Ireland life assurance and pensions business, with €12bn of assets under management.
lFormer highly profitable Bank of Ireland Asset Management (BIAM), where assets have more than halved over the past five years to €25bn.
lICS Building Society, where BoI has committed to selling at least €2bn of the €7bn loan book.
Market sources said last night that corporate financiers will go into overdrive within the next few weeks trying to line up potential acquirers for the various businesses.
They generated combined operating profits of €90m for the nine months to the end of December.
BoI finance director John O'Donovan indicated to analysts during a conference call that the group would be unlikely to deliver significant capital gains from the sales.
"The largest of the assets is New Ireland, with net assets of about €850m," he said.
BoI has until the end of 2014 to carry out the disposals, but negotiations over the coming months will focus on different deadlines for the specific businesses.
BIAM and New Ireland are likely to be more immediate sale priorities, according to industry sources, since clients of those businesses would be put off by long periods of uncertainty over ownership.
It is understood Irish Life & Permanent is keen to get hold of both units, but it would likely hit large competition issues, as it would give them over 50pc shares of both the domestic life and asset management markets.
BoI executives were coy on saying exactly when it will unveil the capital raising deal.
However, Mr O'Donovan said "major issues" like an overhaul of the bank's pension plan, greater clarity on EU restructuring plan, and the transfer of the first batch of loan to NAMA are not out of the way.
"So, we're in a much more robust position in terms of considering that option," he said.
The Irish Independent has already reported that the massive transaction will consist of four elements. These include a €1.5bn rights issue and a €400m stock sale to "quality" institutional investors not currently on its shareholder.
Both are fully guaranteed by four international investment banks, Credit Suisse, UBS, Deutsche Bank and Citigroup, with Ireland's Davy also understood to be underwriting a small element of the deal.
Credit Suisse and IBI Corporate Finance, part of BoI, are managing the process.
It is also expected a further €500m will be generated as holders of some of the group's riskier bonds -- or Tier 1 notes -- convert into equity.
In addition, the Government is lining up to convert a portion of its €3.5bn of preference shares into ordinary stock. Market sources estimate that about €700m-worth will be converted.
The State has already taken a €250m, or 16pc, direct stake in BoI in February as it received shares in lieu of a cash dividend.
This was brought on by the EU banning the bank from paying discretionary dividends as it probed its viability plan.
Mr Boucher said yesterday he expected this to be lifted next January, enabling BoI to make the payment in cash.
But on the negative side, the bank has committed not to resume paying normal dividends until September 30, 2012, or when the Government's preference shares are redeemed.