State to make €2bn from sale of BoI shares

The State will net €2.05 billion from the sale yesterday of its 1.8 billion preference shares in Bank of Ireland.

This comprises the €1.837 billion face value of the shares, a profit of €62 million from the sale of a large portion of the stock to private investors, and a dividend payment of €151 million due to the State.

The bank is also paying the fees of Goldman Sachs International, who advised the Department of Finance on the transaction.

Bank of Ireland declined to comment on how much will be paid to Goldman Sachs but the total expenses attaching to a share-placing that part-funded the deal amounted to €43 million.

Minister for Finance Michael Noonan told The Irish Times that the transaction "sends all the right signals" to capital markets about Ireland's recovery.

“This was a very big transaction and what the markets see is private investors prepared to buy into an Irish bank and they see us using the proceeds to add to our cash buffers and improve our debt profile,” he said.

"This all builds confidence and further improves market sentiment towards Ireland as we are getting back to normal market funding. Since we announced our exit strategy [from the EU-IMF bailout] there has been a number of very important developments including the quarter-three employment figures, the debt issuances by AIB and Permanent TSB, the strong exchequer performance in November, and Nama announcing it has achieved the key milestone of €7.5 billion senior debt redemptions by year end.

Confidence
"All of these things build confidence in Ireland's recovery at home and abroad."

To finance the purchase of the preference shares, Bank of Ireland placed 2.2 billion units of stock at 26 cent a share, raising €537 million net of expenses. This money is being used used to buy €537 million worth of preference shares from the Government, which have a face value of €1 each.

The new shares were the equivalent of 7.4 per cent of Bank of Ireland’s ordinary stock before the placing.

Private investors have agreed to pay around €1.3 billion for the balance of the preference shares, which carry a coupon of 10.25 per cent.

The shares will now be listed on a stock exchange in Luxembourg, where investors will be free to trade them.

Bank of Ireland said it does not expect to redeem the preference shares before January 1st, 2016.

Under the terms of the agreement with the State, dating back to 2009 when the preference shares were issued, the cost to the bank of the stock would have increased by 25 per cent if they had not been redeemed by March 31st 2014.

This clause has been extinguished under agreement between Bank of Ireland and the investors who have acquired the shares.

Bank of Ireland said yesterday that it would save €55 million a year from the retirement of the preference shares that are being funded via the share placement. A spokesman declined to comment on which investors acquired this stock.

It emerged that the Government did not exercise its rights. This has the effect of reducing its shareholding in the bank from 15.1 per cent to 14 per cent, worth around €1.2 billion currently.

The purchase of the preference shares removes a condition of the bank’s EU restructuring plan that prevented it paying a dividend to ordinary shareholders.

The preference shares form part of the €4.7 billion total investment made by the State in Bank of Ireland. The bank said yesterday that it has returned €5.9 billion to the State to date in various payments.