Irish Life sale ‘relies on market calm’

It will take at least another four months of benign market conditions across the eurozone before the divestment process for Irish Life will begin, says group chief executive Kevin Murphy.

“But ultimately the decision belongs to the Minister for Finance.”

The potential sale of State-owned Irish Life to insurance firm Canada Life broke down last November on the back of torrid market conditions. The Government had hoped to generate roughly €1.3bn from the sale to help defray the costs of bailing out the banking system.

“Most of the potential investors are outside the eurozone, so the successful resolution of the eurozone crisis is a significant issue. Confidence is increasing globally on this issue due to the recent announcement on EU banking supervision and the ECB’s short term support of the bond market for peripheral countries,” said Mr Murphy.

Irish Life has an embedded value of €1.8bn according to the latest set of results for the first six months of this year, released yesterday. A target price of €1.3bn is just over 70% of the embedded value, which Mr Murphy says is “achievable.”

“Our business is ready for a sale. We have a low risk cash generative business model. We are strongly capitalised. We have demonstrated resilience through the downturn through continued profitability. Ultimately Ireland will recover and we offer good exposure to that recovery.”

Irish Life made a €96m profit for the first six months of the year on an IFRS basis, compared with a €16m profit for the same period in 2011. On an embedded value basis, commonly used by insurance companies, it made a €112m profit for the first half of the year compared with a €5m loss for the first half of 2011.

Speaking at a press briefing following the results, Mr Murphy said it would take at least six months of calm market conditions before the company would appoint advisers to handle the sales process. There has already been two months of relatively normal trading conditions, he added.

But he declined to say whether there had been any preliminary discussions with potential advisers. Deutsche Bank were the advisers on the failed process last November.

If there isn’t another eruption in the eurozone crisis, the Irish Government bond yields could ease from the current level of 5.4% to the high 4% range, “which is consistent with a high debt country,” said Mr Murphy. If the Government secures a deal on the bank debt, that the yield could drop to the low 4% range, he added.