Bondholders of BoI to call bank's bluff on €1.5bn debt exchange
Published 17/12/2010 | 05:00
A SIGNIFICANT core of Bank of Ireland investors look set to reject the bank's latest debt exchange offer, which closes today. Market sources last night said that a sizeable band of investors had decided to "call the bank's bluff" and refuse to accept the tender.
BOI is offering to exchange €1.5bn of its riskiest debt -- known as lower tier-two instruments -- for government guaranteed debt.
Bondholders are being offered between 48pc and 57.5pc of the nominal value of their instruments in the new 13-month bonds.
The bank could gain a capital boost of up to €750m if all investors sign up, while investors would have an attractive interest rate for 13 months and the certainty of cashing in at the end of that period.
Sources yesterday said that while some investors "just want to get out of Ireland" and would accept the tender, others found the offer "very unfair".
Others pointed out that the government guarantee behind the new 13-month debt was "worthless" since the State has had to be bailed out by the IMF.
"People will have to take a hit when they convert to the new bonds, and then they'll have to take another hit because they'll have to mark down the new bonds," said one source.
"That's just not very attractive."
The debt-swap deadline comes in the week that the Dail launched new legislation that would allow the Finance Minister to inflict losses on subordinate debt holders in all government-supported institutions.
The provisions will only be enforced if voluntary exchanges like the one on offer from Bank of Ireland fail. A bondholder group is already taking advice from London-based law firm Bingham on the legality of those efforts.
The Bank of Ireland offer marks the first plan in the bank's efforts to raise €2.2bn in fresh capital by the end of February.
Any money that the bank can't raise itself will be put in by the Government, raising the spectre of majority state ownership.