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Sunday 21 September 2014

Greek crisis puts €1.7bn Irish Life float in jeopardy

Default risk may see investors shun sale of insurance unit

Nick Webb and louise McBride

Published 19/06/2011 | 05:00

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Unrest in the Greek capital last week

THE Greek sovereign debt crisis may derail the planned €1.7bn float of IL&P's insurance business Irish Life later this year.

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The already wobbly flotation plan has also been hit by Finance Minister Michael Noonan's statement that bondholders in Anglo irish Bank and Irish Nationwide could be torched.

Kevin Murphy's company has been given an October deadline to resolve its capital position, where it needs to raise €4bn.

Last Friday, Irish Life & Permanent's share price had fallen so far that the entire company was worth just €19m.

Speaking to the Sunday Independent, a senior investment banker said: "Irish Life won't go to IPO. They won't get anything like the valuation they are looking for that way. They are talking about a value of €1.7bn or so, they won't get anything like that."

Simon Adamson, senior bank analyst with the British research firm Credit Sights, believes the sale of Irish Life and the completion of a successful rights issue at Bank of Ireland will "be very difficult to achieve -- whether or not the Greek situation eases or deteriorates".

"Concern around Greece has a knock-on effect on sentiment in the wider financial markets," said Mr Adamson. "I'd be very sceptical about the chances of a sale or initial public offering (IPO) in these markets. As for Bank of Ireland, if concern grows about Irish sovereign risk (because of Greece or other factors), the attraction of the rights issue will diminish."

A senior insurance executive also dismissed suggestions that the Government would be able to recoup more than €1.5bn by floating the Irish Life unit later this year. "They would be lucky to get €1bn," he said.

Other financiers told the Sunday Independent that Irish Life would be more likely to be offloaded through a trade sale rather than a stock market flotation. It is believed that a number of US insurers, including Met Life, are monitoring the situation.

"There is very little appetite among investors for equity in banks," said Bruce Packard, an analyst at the London investment bank Seymour Pierce. "It is right that the system needs to be recapitalised, but many fund managers feel that equity at the bottom of the capital structure is an unattractive investment. Before the credit crisis, investors were prepared to give banks the benefit of the doubt; now the burden of proof has shifted, and investors would rather believe in a celestial teapot revolving around the sun in an elliptical orbit."

IL&P sources stressed that the Irish Life unit was "not a bank" and that it had "huge inherent value".

But IL&P's advisers at Deutsche Bank will be intensely aware of the almost farcical attempts by European leaders to hammer out another convoluted solution to the Greek debt crisis this weekend. Last Friday Nicolas Sarkozy and Angela Merkel agreed an outline deal where Greek bondholders could extend the maturities of their debt.

"The period is resembling the build-up to the Lehman collapse," said Deutsche Bank strategist Jim Reid last week.

The prospect of Greece defaulting on some of its debt is rising fast. This may lead to another banking crisis as banks across Europe and the US have major holdings of Greek debt.

Foreign banks own €1.8 trillion worth of debt issued by Ireland, Portugal, Spain, Italy and Greece. A euro-wide default or haircuts on these debts would spark a global banking crisis as banks would struggle to absorb the losses.

"The disunity within the EU corridors of power, as well as the political and social upheaval in Greece, has shaken the markets," Gavan Nolan, credit analyst at Markit, said last week. "The plight of Greece and the panic in the sovereign market has brought the risk of contagion to the fore again."

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