State recoups €3.4bn after selling over 25% stake in AIB

AIB’s market value rose 5.7 per cent to €12.9 billion on its first day back on the main Irish and London stock markets after 7½ years under almost complete State ownership.

The Government confirmed on Friday morning that it had sold an initial 25 per cent stake in the bank to stock market investors, raising about €3.4 billion as the deal was priced at €4.40 per share, the middle of a range that was outlined early last week.

Amid strong market demand for the shares, investment banks working on the deal subsequently exercised an option to buy a further 3.8 per cent of AIB from the State and place the stock on the market, raising an additional €400 million.

The Government’s holding in AIB, which it seized in 2010, has fallen to about 71 per cent as a result.

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The IPO drew about €13.5 billion of orders from investment firms and individuals seeking to invest in Europe’s largest such deal so far this year, 4½ times the amount of stock that was put on the market, according to sources.

Small, or retail, investors were allocated 10 per cent of the shares that were sold, with the remainder given to large institutions such as international pension funds and asset managers.

Retail investors who applied for up to €50,000 of stock have had their orders met in full, plus 53 per cent of the amount applied for in excess of that figure.

Private ownership

“The first stage of Allied Irish Banks’ return to private ownership is a notable further step in the long recovery of Ireland’s banking sector,” said Fitch, one of the world’s top three credit ratings firms. “ The privatisation was able to get under way thanks to AIB’s improving credit fundamentals, helped by falling unemployment, rising property prices and strong economic growth.”

Fitch projects that the Irish economy will expand by 3.2 per cent this year, and 2.7 per cent in 2018.

Still, the firm highlighted that AIB still has a high level of problem assets, even after impaired loans fell from a peak of €29 billion in 2013 to €8.6 billion as of March.

“However, we expect asset quality to continue improving in 2017, underpinned by a supportive operating environment, strong demand for Irish commercial property and the bank’s proactive approach to reducing legacy assets,” Fitch said.

Sources said that US investors snapped up a quarter of the shares sold by the State on Friday, UK-based institutions about a quarter. About 30 per cent of institutional investors, understood to be mainly short-term oriented hedge funds, received nothing at all as Department of Finance officials and investment banks advising on the deal put an emphasis securing mainly long-term investors.

Milestone

“The successful completion today of AIB’s IPO represents a significant milestone in the Government’s long-held policy to dispose of our banking investments, returning them to the private sector over time,” said Minister for Finance Paschal Donohoe. “The offer was very well received, and attracted high demand from investors everywhere it was marketed.”

He said the sale “created a strong platform” for taxpayers to recover the entire €20.8 billion they committed to AIB during the crisis.

Before the IPO, AIB had returned €6.8 billion of cash to the State, including capital repayments, interest and fees for government guarantees.

The Minster declined to say when he plans to sell further shares in AIB, Bank of Ireland, in which the State owns 14 per cent worth €1 billion, or Permanent TSB, where the taxpayers’ 75 per cent holding is worth €956 million.