BoI's offer 'could raise €750m' as it seeks to fend off state control
BANK of Ireland could raise up to €750m in equity if the market embraces the bank's newly launched liability-management exercise, stockbrokers NCB said last night.
Yesterday's offer to swap debt from bondholder groups marks the first step along a process that could also see BoI asking shareholders for more money and tapping capital markets.
The bank is trying to raise as much as €2.2bn by the end of February, so that it won't have to accept further government support that could leave it majority state-owned.
Yesterday's offer sees subordinate bondholders who hold €1.5bn of the riskiest debt given the chance to exchange their debt for new government-guaranteed senior debt.
Bondholders are being offered between 48pc and 57.5pc of the nominal value of their debt instruments, reflecting the price the subordinate bonds are already trading at in the market.
Swapping to the new senior debt gives the bondholders security that the will get their money back and neutralises fears of Anglo-style forced haircuts on subordinate debt.
The new senior debt instrument is also due to be repaid in 13 months, giving bondholders their money back far sooner than the subordinate debt instruments, some of which don't mature until 2020.
From BoI's point of view, even though the subordinate bonds are trading at about half their 'face' value, the bank must still record a liability of 100pc of the original loan amount.
If the subordinate bondholders agree to move over to the new instruments' worth, then BoI can book the difference between the face value of the new bonds and the face value of the old ones as a gain.
"Assuming full take-up, we estimate that the group could generate equity in the region of €700m to €750m," NCB banking analyst Ciaran Callaghan wrote in a note to clients last night.
Mr Callaghan added that BoI would be "hoping for a strong participation" in the offer, pointing to the legislation going through the Dail that will force losses on similar debt holders at state-controlled banks.
Debt market investors who have been hugely critical of the forced haircuts and sources say there would be appetite for "voluntary" discounts -- if only because some clients "just want to get out of Ireland".
Investors have until December 17 to sign up to the offer, reflecting the urgency of BoI's capital demands.