Shares in Bank of Ireland tumble as investors shed public sale rights
Shares in Bank of Ireland (BoI) tumbled yesterday as a glut of investors took their first opportunity to sell their rights to participate in the group's €1.1bn share sale in the public markets.
All told, BoI is raising €1.72bn through a rights issue, but the Government is stumping up €630m of this as it seeks to maintain a 36pc stake in the bank.
Wednesday's share price close of €1.40 pointed to an inherent value -- or what is known as its theoretical ex-rights price -- of 89c per share, according to analysts, when the terms of BoI's deal is factored in.
The bank offered investors the right to buy three shares for every two they own, at a price of 55c each.
However, the stock closed yesterday at 76.5c, marking an effective 14pc drop in its value, amid huge volumes, as 43 million shares traded hands.
Trading of the rights to subscribe in the issue -- or what are known as nil-paid rights -- was also heavy yesterday.
Dealers said that all else being equal, the nil-paids would have been worth 35c (90c minus 55c), based on Wednesday's share price close. However, they closed yesterday at 22c as 14 million of the rights traded.
"There was a big seller of the nil-paids out of London from the start of trading," said one senior stockbroker. "This seems to have spooked investors from the outset."
Goodbody Stockbrokers analyst Eamonn Hughes said there was likely to be heavy volatility in the stock over the next few weeks through the rights issue period. "The wider market concerns around sovereign risk in Europe is hardly a helpful backdrop," he said.
Meanwhile, Finance Minister Brian Lenihan yesterday welcomed this week's overwhelming vote by shareholders that approved BoI's broader €3.56bn capital raise.
The deal saw the State, through the National Pension Reserve Fund (NPRF), convert €1bn of its preference shares in the bank into ordinary stock -- which allowed it then to participate in the rights issue.
The effective value of this investment has declined by €240m since the deal was announced almost four weeks ago.
"This is the first such equity raising by any of the Irish banks since the start of the financial crisis, and represents an important step in restoring the banking system to health," Mr Lenihan said.
Mr Lenihan noted that BoI had committed to make €3bn available for small- to medium-sized enterprises (SMEs) both this year and next.
"The bank has submitted its SME lending plans for 2010 and 2011 to my department and they are currently being reviewed by the department and Mr John Trethowan, the credit reviewer," he said.
The NPRF had also cancelled its right to acquire 334 million shares in BoI in four years' time -- after it received a payment of €491m from the bank.