Sunday 18 March 2018

AIB set to raise capital in debt restructuring deal

Joe Brennan

Allied Irish Banks (AIB) is believed to be planning to raise hundreds of millions of euro of much-needed capital through a fresh debt restructuring deal, as the group prepares to unveil full-year bad-loan losses of €5.3bn next week.

The consensus among eight analysts polled by the Irish Independent is that AIB will post a €2.5bn net loss -- the first shortfall since its foundation in 1966.

The bad-debt charge, which AIB signalled in November, equates to a writedown of more than 4pc of the group's loan book. It is largely against the property portfolio in the Republic -- much of which is bound for the National Asset Management Agency. The group expects its total loan loss provisions for NAMA loans to stand at €4.2bn at the end of December.

Market sources see an AIB debt restructuring plan centering around the bank buying back a class of subordinated bonds -- called lower tier 2 bonds -- that are trading at a discount, despite being covered by the original bank guarantee scheme. But rather than offering cash, it is likely AIB will follow rival Bank of Ireland's recent lead in offering longer-dated bonds, carrying a higher interest payment.

AIB has more than €2.8bn of long-standing lower tier 2 bonds. Observers suggested the group was not sitting on a big enough pile of other subordinated classes -- tier 1 and upper tier 2 -- to make an exchange of these notes worthwhile.


The group will be hoping proceeds from a transaction will give the group fresh momentum, shaving hundreds of millions of euro off the €4bn-plus analysts expect it will need to raise over the coming months to shore up its balance sheet against rising bad-loan losses.

Market participants widely expect AIB will either decide or be told by Brussels -- which is reviewing its restructuring plan -- to sell its stakes in US associate M&T and Polish unit Bank Zachodni WBK.

It could generate more than €700m of capital from an M&T stake sale at current trading levels and foreign exchange rates. Societe Generale analysts believe it could release a further €1.2bn of capital from a Bank Zachodni WBK sale.

The French broker highlighted that AIB would like to hold on to the Polish unit if at all possible. But other options available to AIB included the sale of its British business, which could boost group equity by €650m, it said, largely by way of reducing the group's risk-weighted assets.

AIB could also sell a 20pc stake at a premium to a strategic investor -- initially raising more than €500m, Societe Generale said. Such an investor would also be expected to support a 'rights issue' share sale.

It is also widely expected the Government will end up converting some of its €3.5bn of preference shares in AIB into ordinary shares. It is not clear whether it will convert some of its holding before a rights issue, or use its preference shares to underwrite, or guarantee, a share sale in the markets.

With AIB's shares having dipped below the key psychological €1 level for the first time in nine months, the bank faces a highly dilutive share sale if the stock doesn't rally.

Irish Independent

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