State will have to put €1.1bn into IL&P if insurance sell-off deadline is missed
THE Government will have to pump €1.1bn into Irish Life & Permanent by the end of the year if the sale of the PLC's life insurance arm hasn't been agreed by then.
The new deadline was agreed with the EU/IMF/ECB last week, and will be included in the next Memorandum of Understanding (MOU), the Irish Independent has learned.
The clause also means that if the agreed sale price for IL&P is less than €1.1bn, something seen as increasingly likely, then the Government will have to make up the shortfall before the end of the year.
The news comes almost seven months after IL&P was ordered to raise €4bn in capital to shore up future losses at its Permanent banking arm.
The PLC was effectively nationalised in July when it got a €2.9bn injection from the Government, in a combination of equity and a contingent convertible loan.
The remaining €1.1bn was to be raised chiefly through the sale of Irish Life Assurance, which IL&P's management initially said could be sold as early as last summer.
That timeframe was quickly deemed unrealistic, and the July version of the MOU signed with the EU/IMF/ECB troika said that the recapitalisation would be "reviewed" in October.
Sources confirmed that the outcome of the review was a new clause in the MOU declaring that IL&P should be recapitalised by the end of the year "subject to appropriate adjustments" for asset sales.
The wording means that if the sale of IL&P is agreed and seen as a certainty, the PLC will be given 'credit' for the amount the sale will raise. If the sale price is less than €1.1bn, the balance will have to be injected.
Market sources see this as increasingly likely, since the highest of last week's second round bids for the life insurance giant are believed to have come in close to the €1bn mark.
A spokesman for the Department of Finance declined to comment on the prospect of more money being put in at the end of the year, stressing that the sale process was ongoing.
Three groups submitted bids for Irish Life Assurance (ILA) last week. The frontrunner is seen as Canada Life Ireland, backed by its parent, Great West Lifeco.
JC Flowers and Apollo Global Management have also submitted a joint bid, while private equity player CVC is the third contender. One of the bids may have already been eliminated because it was too low, sources say.
It is understood that the troika is unlikely to force the sale of ILA if a decent price can't be achieved.
Unlike the sale of Bank of Ireland's New Ireland, the ILA sale has not been imposed by the European Commission as a condition of the PLC's state aid.
IL&P had been preparing plans for a stockmarket offering of the life insurance arm if the sale process failed to elicit sufficiently high bids. The Irish Independent last week revealed that IL&P was no longer "actively pursuing" that process.
Market sources say a flotation would be extremely challenging for any company in Europe, never mind a finance company in Ireland.