Business Irish

Thursday 19 April 2018

State raises €1bn in surprise deal for BoI shares

Donal O'Donovan

Donal O'Donovan

A surprise sale of Bank of Ireland bonds means the Government has now clawed back 70pc of the €4.8bn cost of rescuing the lender.

The State yesterday offloaded €1bn of so-called contingent convertible capital bonds, or CoCos, that were owned by Bank of Ireland in a surprise deal that attracted a massive €4.8bn of cash offers, mainly from abroad.

Huge demand for the relatively risky bank bonds is the latest sign of a surge of confidence about Ireland on the markets. It came just a day after investors in the bond market had offered to lend €7bn to the State in the first government bond deal of 2013.

Finance Minister Michael Noonan said later that the State could raise another €7bn in future sales.

"This disposal is very positive as it will enable the Irish State to start reducing the level of indebtedness that was generated by the banking crisis," he said.

Later, he added that the State had no long-term interest in owning stakes in banks.

"Since making this €1bn investment in Bank of Ireland in July 2011, the Irish taxpayer has received a generous return of 10pc a year on its money while this disposal will also generate a profit in the region of €10m," he said.

Strong investor demand allowed the Government to sell all of the Bank of Ireland CoCo bonds it owned, instead of the €500m expected when the deal was announced just hours earlier.

CoCo bonds are regarded as higher risk than standard debt owed by banks because bondholders are automatically "burned" if a bank gets into trouble, when the bonds convert into riskier bank shares. But they are less risky than ordinary shares that get wiped out when a bank fails.

Yesterday's success means the focus will now turn to the State's €1.6bn of AIB CoCo bonds and €400m of CoCos linked to Permanent TSB.

Much of the Bank of Ireland debt sold yesterday was snapped up by shareholders who already own shares in the bank.

Unlike shares, the bonds come with an annual interest payment of 10pc, making it an attractive alternative to equity, especially for shareholders who already see the bank as a good investment.

All of the bonds were bought by private-sector investors and they were sold at a slight premium of 1pc more than face value, according to sources close to the sale.

Including the latest deal, the State has recouped €3.5bn from Bank of Ireland since the bailout.


In addition to yesterday's €1bn, the bank has paid €2.5bn to the Government, including €1.2bn in fees for use of the state guarantee of bank debts, and €500m in interest on various state loans as well as €800m paid back in 2010 in an earlier redemption of "warrants" – another of the financial instrument used to keep the bank afloat during the crisis.

The remaining taxpayer investment in Bank of Ireland is a 15pc ownership stake, and €1.8bn of relatively less risky preference shares.

Bank of Ireland is regarded as the "least worst" of the Irish banks and is the only big Irish-owned lender that escaped full nationalisation as a result of bad property loans.

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