Investors reject upper end of AIB price range
AIB's initial public offering is on course to price at €4.40 per share, according to senior banking and investor sources.
The price is at the mid point of the bank's revised pricing range, unveiled last night.
Books on the watershed deal close on Thursday evening with the nationalised lender set to float on the London and Dublin stock exchanges on Friday. Normal trading commences on Tuesday.
At that price level, the Government will reap €3bn for its sale of a quarter of the bank. It implies a total valuation of close to €12bn - a bit more than half the €21bn cost of bailing out AIB.
The bank is held on the Government's books at a valuation of €11.3bn.
Sources close to the deal said the likely share price implies a discount to AIB's book value - at 0.9 times consensus projections for total net asset value at the end of the 2017 financial year. The discount underscores investor resistance to a premium valuation, but implies a higher valuation than Bank of Ireland.
This initial selldown reflects the delicate balancing act facing the Government: price the deal too high and it risks making it harder to sell the rest of the bank if shares fall after the IPO, price it too low and any later surge in the valuation invites accusations it was sold on the cheap.
Yesterday, bankers to the deal narrowed the price range for the sale to between €4.20 and €4.60 a share after investors displayed strong appetite for the deal at the low end of the initial valuation range. Previous guidance was €3.90 to €4.90 a share.
A spokesman for the Department of Finance said the Government had received sufficient support from investors to sell its stake at "the upper half" of the revised range.
However investors and bankers indicated the deal was on track to price at €4.40 - with €4.45 or €4.50 the upper level of expectations,
As the Government's long-anticipated part privatisation of AIB nears the endgame, many investors are digging in their heels. One fund manager at a large London institution pointed out the relatively small stake on offer mitigates against a premium. He added the poor performance of Permanent TSB's shares after the Central Bank tightened mortgage rules two years ago remains a market bugbear. The Government sold 25pc of PTSB in 2015 at €4.50 per share. Weeks later the stock sank below the issue price and is yet to recover.
Some investors also highlighted that AIB will not immediately enter benchmark indices, like the MSCI, that global fund managers are in effect bound to track, meaning there is no urgent need to buy into the float.
The final hours of an IPO are characterised frequently by a cat-and-mouse game between bankers managing the deal and institutional investors as the two sides trade off on price and share allocation. According to sources, on this occasion, the balance of pricing power is thought to rest largely with institutional fund managers.
Meanwhile, retail investors submitted their orders last night. It is understood bankers targeted a final haul of €500m from this end of the market. That's less than the €800m to €900m targeted two weeks ago from ordinary investors.
The final retail component has yet to be decided but small investors are unlikely to share more than 20pc of the current AIB sale.
The minimum order for retail investors was set at €10,000.