BANK of Ireland is preparing to launch a limited debt-for-equity swap before the end of the month but could make as little as €100m from the deal, the Irish Independent has learned.
The news comes after newswire Bloomberg yesterday reported that Bank of Ireland (BoI) would offer to exchange some of its riskiest debt instruments for shares in the bank.
The proceeds of the deal will contribute towards BoI's goal of raising €2.2bn in capital by the end of February, to meet new regulatory targets and avoid falling into majority state control.
The latest debt offer, which has not yet been finalised by Bank of Ireland, is understood to have been triggered by recent expressions of interest from holders of the bank's so-called subordinate debt.
"The bank may target some of its perpetual undated bonds, where it has €600m to €700m outstanding, as part of a debt-for-equity swap," Davy's analyst Stephen Lyons said.
Some reports yesterday said the debt-for-equity swap could generate as much as €200m for BoI, but sources last night suggested the figure would be close to €100m.
Many debt holders are prohibited from holding equity by their own internal guidelines, so the appeal of a debt-for-equity swap is limited by definition.
Those who take up the deal will also have to be convinced that there is value in BoI's equity -- even though shareholders face heavy dilution as the bank battles to raise its €2.2bn.
The bank has already raised €700m of the cash without hurting shareholders, but is likely to offer new stock to raise much of the remaining €1.5bn.
Reports at the weekend claimed BoI was in talks with Middle Eastern sovereign wealth funds about buying some of the new shares.
Contacts with several other investment groupings are also taking place with a view to executing an organised sale of stock, or private placement.
It is understood, however, that the bank is not actively engaged in talks with investors from China.
As well as the private placement, the bank will also do a rights issue, where new stock is offered to existing shareholders.
Both of these share offers will have to be approved by an extraordinary general meeting of BoI shareholders -- sources said no such meeting would be required for the debt-for-equity swap because the number of new shares involved would be so small.
BoI is already 36pc state-owned, and is hoping to avoid becoming the fifth major financial institution to fall into state control.
Market sources, however, say the bank faces an uphill challenge to convince investors to stump up cash given prevailing concerns about Ireland and its banks.
(Additional reporting, Bloomberg)