AIB in €3bn debt buy-back offer

AIB has launched a debt repurchasing offer which could potentially raise up to €3 billion — half of the funds needed for it to meet fresh capital requirements.

As well as nearly nationalising the bank, the Government’s latest €3.7bn capital injection in AIB, just prior to Christmas, lowered the amount of money it needs to raise by the end of February in order fir it to meet revised capital targets.

Prior to that funding — which immediately upped the state’s stake in AIB to 49.9%, and nearly 93% following the still pending completion of the sale of the bank’s Polish operations to Spanish bank, Santander — AIB required fresh capital of €9.76bn; but it now needs to raise €6.1bn by the end of next month.

With most of AIB’s key overseas assets already sold, the bank has now offered to buy back some of its subordinated debt, at a significant discount, in a bid to further strengthen its financial position.

The bank is offering bondholders €300 in cash for every €1,000 of debt held; which amounts to a discount of 70%. The offer covers bonds issued in euro, dollars and sterling and has a total nominal value of around €4.1bn. With the discount in place and a total take up of the offer, AIB could end up raising nearly €3bn.

However, the bank is not speculating on how much of a take-up it is targeting, but it is thought the full extent of the offer will not be met. AIB said “the rationale of the offer is to optimise the capital base of the bank.”

The European Commission last month signalled that it wanted AIB’s shareholders and junior bondholders to make “a significant contribution” to its restructuring costs.

“The offer is pretty punitive, given where AIB’s bonds were trading a couple of months ago, but I guess the cash makes it more palatable. Ireland’s new banking law makes it very plausible something more penal will hit anyone refusing to take part this time,” commented Tom Jenkins, an analyst with Jefferies International in London.

Additional reporting by Bloomberg