By Eamon Quinn
Shares in FBD ended 4% higher yesterday on relief that the insurer had bought out a costly 2015 bond in a transaction potentially boosting the prospects of higher dividends.
The insurer will pay €86m in cash to buy out the €70m convertible bond from Canadian financial services firm Fairfax, which the Irish insurer needed to avert a crisis three years ago.
The bond which paid a 7% interest rate could have led to FBD issuing over 8.23 million in shares to Fairfax if the price exceeded €8.50 for 180 days, starting last month. It had long been thought Fairfax wouldn’t wish to own the shares which would have been the equivalent of it having a stake over 19%.
However, with the shares trading yesterday at €10.55 and above €8.50 for some time, the uncertainty had acted as a drag. The insurer said the €86m price would be met by it issuing €50m in new 10-year notes and from its own resources, saying “existing shareholders will not suffer any dilution”.
“It is expected to reduce ongoing interest costs, which over time should provide increased dividend potential for shareholders,” it said.
“Fairfax’s investment in 2015 was a meaningful endorsement of our business when we needed it and they have been a fantastic partner,” said chief executive Fiona Muldoon.
FBD shares have risen 29% in the last year, valuing it at €364m. Investec analyst Owen Callan said the bond buyout had dissipated “the potential overhang which Fairfax’s stake would have constituted”. It has a buy recommendation and a target of €12.65. The IFA said it was pleased. “This is a positive development for FBD’s existing shareholders and for Irish farmers who founded the business 50 years ago,” it said.