Monday 26 February 2018

State may sell bigger AIB stake at €13bn valuation

Michael Noonan
Michael Noonan

Gretchen Friemann

The Government may sell more than just a quarter stake in Allied Irish Bank this month if investor demand for the initial public offering proves stronger than anticipated, the Irish Independent has established.

Under an option known as a 'greenshoe', bankers on the AIB share sale can expand the deal size, potentially raising more than €3bn for the State.

Finance Minister Michael Noonan has agreed to a 15pc over-allotment option meaning the Government sale could amount to 28.75pc if investors flock to the trade.

News of the Government's ability to increase the size of the offer came as analysts valued the nationalised lender at between €12bn and €13bn - well above its current book value of €11.3bn but still some distance from the €20.8bn injected by the taxpayer in the midst of the financial crisis.

AIB CEO Bernard Byrne yesterday claimed there was "significant investor appetite" in the bank and highlighted management's discipline on capital and costs, which helped return the once-profligate lender to three consecutive years of profit.

He pointed out the overhaul had also "dramatically" cut AIB's billowing non-performing loans from a peak of €28.9bn in 2013 to €8.6bn in the past quarter.

While Mr Byrne also played down any prospect of cornerstone or anchor investors, which help underpin demand for an IPO by signing up to lengthy share lock-ups in exchange for large allocations, banking sources close to the deal insisted "all options remain on the table".

The Government however has agreed to lock-up its remaining 75pc stake in AIB for six months.

The commitment excludes the Government from benefiting from any surge in the share price over the escrow period, although the 15pc 'greenshoe' provision captures some of the upside.

As AIB's management team and its nine-strong banking syndicate race into sell mode, the speculative valuations have prompted scepticism from others in the market.

Stephen Hall of Cantor Fitzgerald pointed out that a €13bn market capitalisation implies a hefty 22pc premium to Bank of Ireland and he questioned whether AIB deserves such a lofty value.

Mr Byrne cast the IPO as a play on Ireland's resurgent economy, emphasising on a conference call to journalists yesterday that the bank is primarily geared to a rapidly growing economy where a third of the population is under the age of 25.

Close to 85pc of AIB's operations are concentrated in Ireland with the remainder exposed to the UK.

However investors' sources said analysts from the banking syndicate are highlighting an expected increase in the dividend to more than €500m in 2019 or 55pc of annual earnings - a strategy that would bring AIB in line with its European peers.

The prospect of special dividends from 2019 are also included in the sales pitch.

AIB capital buffers far exceed regulatory guidelines - its CET 1 ratio sits at 16pc - and if the bank continues to deepen its grip on the mortgage and lending market, bankers predict special payouts could reach €2.5bn by 2021.

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