AIB sale towards the back end of 2015 will cut debt

The Government will use the proceeds of the sale of AIB to pay down debt when it partially offloads the state-owned bank towards the end of 2015 or the start of 2016, according to the Finance Minister Michael Noonan.

Speaking in the Dáil yesterday in response to a question by Fianna Fáil TD, Michael McGrath, Mr Noonan said, “it is the intention of the Government, and there is a Government decision, that it would be used to pay down debt, but if it goes to 2016 it will be for the Government in 2016, whoever composes it, to make the decisions. We are doing the preparatory work now.

“We have a valuation on the bank but the real valuation will be after some shares are sold. If, for example, the State was to sell 25% of it, we would have market valuation on the other 75%, so we would be in a better position. Once there is a market value, we would not be relying on estimates any longer.”

Minister Noonan said he believed that the taxpayers would, over time, recoup the full €21bn pumped into the bank. Consequently, the Government would take its time planning a divestment strategy.

“We will appoint an adviser, take the advice, reconfigure the bank’s shares and move on then. There are issues such as the preference shares and CoCos that must be dealt with, as well as the normal equity. There is a series of issues on which we need to take advice and to make decisions, but we are not rushing it.”

Mr McGrath said he was not opposed to selling a minority stake in AIB, but would like the Government to hold onto an interest for as long as possible to take advantage of the recovering economy.

The State’s 99.8% stake in AIB is held by the National Pension Reserve Fund. It values the common equity of the bank at €10bn. It also holds €3.5bn of preference shares and €1.6bn of contingent convertible (CoCo) bonds. It is believed that the Government will announce a number of measures to restructure the bank’s capital base following the release of its 2014 results at the end of next February. These include a refinancing of the CoCo bonds through a combination of alternative tier one debt and subordinated debt.

Credit analyst with Davy Stockbrokers, Stephen Lyons, said the Government should hold onto some of the €3.5bn preference shares it holds in AIB in order to benefit from capital disbursements as the bank starts to redistribute reserves to shareholders.

Speaking at Davy Stockbrokers outlook for 2015, Mr Lyons said it is now likely that three domestic banks — Bank of Ireland, AIB and Permanent TSB — will having listings on the Irish Stock Exchange by the end of 2015. Following the release of the ECB’s stress tests in October, PTSB was found to have a capital shortfall of €854m.