AIB bond raises €500m

AIB has raised €500m through a 3.5-year covered bond. This is the second time the State-owned bank has tapped the private markets since last November.

Similar to the November issue, the latest bond was not guaranteed by the Government. In a statement AIB said: “This 3.5 year deal was priced at a spread over mid-swaps of 185 basis points and was over four times oversubscribed. The total order book was c. €2.2bn with in excess of 160 international investors, reflecting a well placed and diversified profile. Demand came from 20 countries with 99% placed outside Ireland. This transaction demonstrates the continued progress of AIB’s strategy of engaging with the market in a balanced and measured manner.”

The yield was 2.65%, which was tighter than the 2.75% yield on the previous issue.

This is only the second time in over two years that AIB has raised money from private investors. However, these type of covered bonds, which are secured against the bank’s mortgage book, are the safest type of investment outside of the Government guarantee.

Danske Bank fixed income dealer, Owen Callan, says AIB’s chances of issuing more risky type of debt such as subordinated bonds, hinges on the quality of its balance sheet.

Like other Irish banks, AIB is struggling with mortgage arrears and losses on SME loans and other types of lending.

The next round of Central Bank stress tests are scheduled for July. Investors will then have a better idea of the quantum of losses still lurking in AIB’s balance sheet.