Sunday 25 August 2019

AIB raises €500m as capital plans begin to take shape

Bernard Byrne, chief executive of AIB. Photo: Mark Condren
Bernard Byrne, chief executive of AIB. Photo: Mark Condren
Donal O'Donovan

Donal O'Donovan

AIB comfortably placed €500m of so-called Additional Tier 1 bonds with investors yesterday in a deal seen as an endorsement of progress at the bank.

AIB's newest debt is a relatively risky - for investors - form of borrowing, meaning bondholders would automatically take losses if the bank gets into deep financial trouble in future.

The bonds will be temporarily written down if the bank's so-called core tier one capital ratio falls below 7pc, for example.

The new debt carries an effective interest rate of 7.375pc and has no fixed term, but if the bank redeems the bonds in less than five years it will be hit with penalties.

Along with €750m of 10-year debt issued last week, the borrowing is part of a wider capital reorganisation that has been agreed with regulators and the State, AIB's main shareholder.

"The outstanding success of our two recent capital raising transactions is very encouraging. The results demonstrate market confidence in AIB as an issuer," said AIB chief executive Bernard Byrne.

"The significant participation by overseas investors, in both transactions, is an endorsement and acknowledgement of the progress that the bank has made in recent years in restructuring and repositioning itself as a sustainable, profitable and investable business.

"These issuances are key stepping stones in ensuring the completion of the simplification of our capital structure by the end of 2015. This will enable the repayment of capital to the State and positions us well for a return to private ownership," Mr Byrne said.

"If 2011-13 was about restructuring and 2014 saw the approval of the restructuring plan by the European Commission and the return to profitability, 2015 brought the much-awaited-for capital reorganisation plan," said Filippo Alloatti, an analyst at Hermes Investment Management. He thought the bank's return to the capital markets was well timed.

Deutsche Bank and Morgan Stanley, Bank of America Merrill Lynch, Davy, Goodbody and HSBC acted for the Irish bank on the debt raising.

AIB shareholders will vote on the bank's proposed capital reorganisation on December 16.

Part of that includes a stock reorganisation to replace every 250 of current shares with one new share.

Finance Minister Michael Noonan had long warned that AIB stock was trading at an inflated valuation. (Additional reporting Reuters)

Irish Independent

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