Business Irish

Sunday 25 February 2018

AIB bolsters capital by €445m in bond exchange

Joe Brennan

ALLIED Irish Banks has raised a higher-than-expected €445m of capital from a bond restructuring deal launched last week.

It marks the bank's first self-help step as analysts see it raising in excess of €4bn over the coming months to bolster its balance sheet against NAMA discounts and further loan losses on its remaining portfolio.

The bank's managing director, Colm Doherty, recently signalled he intends to proceed with asset disposals before going cap-in-hand to investors or the Government for additional equity. Yesterday's announcement came after the stock market had closed in Dublin, where AIB shares ended the session down 4.4pc at €1.50. Bank of Ireland fell 2.9pc to €1.25 as investors in the sector across Europe continued to fret about the Greek fiscal crisis.

Dealers said that the Irish sector had been further hit by the Irish Independent's report on Saturday that the new head of financial regulation, Matthew Elderfield, is pushing banks to recapitalise over the coming months to a level where their equity ratios will not fall below 7pc as the economy bottoms out.

Analysts, on average, had been expecting banks to hit a ratio of 6-6.5pc this year, before rising to 8pc by 2012. But market participants expect AIB to glean support today from the success of its bond exchange deal, which saw it buy back billions of euro of so-called lower tier 2 bonds at discounts of between 74pc and 91pc of their original value.


But rather than pay in cash, AIB offered to exchange the notes for longer-dated bonds, which have an annual coupon -- or interest rate -- of 10.75-11.5pc.

Some analysts had expected the bank to raise over €400m from the exchange -- by booking as pure profit the difference between the discounted price AIB paid and how they are carried, at par, on its balance sheet.

But most analysts had pencilled in between 50pc and 60pc of bondholders taking up the offer, to deliver a gain between €285m and €342m.

In the event, over three-quarters of the relevant bondholders subscribed to the offer. "The higher interest rate on the new notes obviously enticed holders to exchange," said Ciaran Callaghan, analyst with NCB Stockbrokers. And Merrion Capital analyst Sebastian Orsi said: "It's a good result for the bank, with the gain at the high end of expectations."

Debt analysts at Dublin-based Glas Securities said last week they believed AIB could raise an additional €150m through further "debt management".

Irish Independent

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