THE sale of Ireland's semi-state companies -- which could yield a €10bn windfall -- could hit a stumbling block, with bondholders in a strong position to scupper the sale of several major firms.
Bondholders lending to several state-owned companies have options in their bonds to demand repayment, if there is a change of control and the State lowers its stake below a certain threshold in any of the companies.
Davy Stockbrokers yesterday identified bondholders in the Dublin Airport Authority (DAA) as holding 'put' options which allow them to demand repayment at par value if the Government ceases to own 50pc of a company and ratings downgrade results.
The semi-state companies have been able to raise cheap debt in recent years -- at least before the financial crisis -- because of their links to the Irish sovereign.
But as a precaution bondholders take out put options to guard against firms being taken over by less credit-worthy buyers.
Davy also pointed out that the European Investment Bank (EIB), also a lender to the DAA, has provided loans that include covenants relating to change of control.
It is likely other state-owned companies, including ESB and Bord Gais, have issued bonds with change of ownership provisions in them.
Davy described the rights of the bondholders as "one technical'' obstacle to the sale of the DAA.
Despite this, the stockbroker said there were no obstacles to the sale of the DAA's international businesses, which are grouped around Aer Rianta International.
A team led by economist Colm McCarthy is reviewing the semi-state companies, but his report is unlikely to be issued before the general election.
It is expected to include recommendations to privatise a raft of state-owned companies, starting with Bord Gais. The IMF/EU bailout team are pencilling in €10bn from sales of state assets.
However, McCarthy's report will make it clear that the sector is not as valuable as some M&A experts believe. The scale of pension deficits is one problem and many of the state-owned companies also have significant debt loads.
The DAA, for example, has debt that comes to six times its annual earnings.
But Davy believes this will lower between now and 2012, when it will come within norms for airport companies. The Davy note said the Aer Rianta business could provide some 'upside' to buyers, and was already giving the DAA 26pc of its turnover.