State recoups €170m on BoI investment

The Government has recouped €170m on its €1 billion investment in Bank of Ireland through convertible contingent capital tier 2 notes.

“The minister for finance, Michael Noonan, welcomed the successful completion of the sale of the entire amount of the State’s €1 billion holding of Contingent Capital Notes (CCN’s) in Bank of Ireland at a price of 101% of their par value plus accruedinterest,” the Department of Finance said yesterday evening.

According to Owen Callan, fixed income dealer at Danske Bank, between the interest paid to the Government by Bank of Ireland on the 10% coupon attached to the tier 2 note and the €10m profit it made on the sale, the State has seen a total €170m return on its investment.

There has been speculation that the Department of Finance would look for a more aggressive price — up to 105% of par value, but it settled on a more conservative 101%. The yield on yesterday’s transaction was 9.61% with €4.87bn worth of bids received.

“This transaction reflects the progress made by Bank of Ireland and by the Irish State resulting in improved market sentiment and international demand for securities with significant exposure to the Irish economy. It is also consistent with Bank of Ireland’s objective of ensuring that the Irish State’s investments in Bank of Ireland are fully repaid and rewarded,” Bank of Ireland said.

The sale does not change Bank of Ireland’s capital position. Moreover, it does not change the Government’s 15% stake in Bank of Ireland.

However, if the bank’s tier 1 capital position falls below 8.25% over the remaining three years of the CCN, then it will be converted into Bank of Ireland ordinary stock. “The conversion price at which the notes would convert is the volume-weighted average price of the ordinary stock over the 30 days prior to conversion, subject to a minimum conversion price of €0.05 per unit,” said Bank of Ireland.

Mr Noonan said the sale was a positive move for the country as it would reduce the overall debt burden. Moreover, the Government will look to sell the remaining €7bn in these type of notes held by AIB and Permanent TSB in the future, he added.

“This transaction builds on the positive momentum from yesterday’s NTMA bond issuance and last week’s Exchequer returns. All of these positive developments are thanks to the economic and structural reforms that have been taken by Ireland and the ongoing commitment of our EU partners to support and improve the well performing Irish Programme of Assistance,” he said.

Bank of Ireland raised €1bn through an unguaranteed covered bond last November — the first time an Irish bank tapped the private markets in over two years.

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