Coalition decisions crucial as privatisations loom

Significant implications from sale of State’s holdings in Aer Lingus, AIB and PTSB

International Airlines Group chief executive Willie Walsh: expected to make third bid for Aer Lingus this week.

International Airlines Group chief executive Willie Walsh: expected to make third bid for Aer Lingus this week.

 

Without it being a policy initiative as such, this could be the year of privatisation in Ireland.

A third bid from International Airlines Group for Aer Lingus is expected this week. There’s a growing sense that IAG’s takeover is inevitable (although with Ryanair holding 29.8 per cent of the shares this should not be taken for granted), which would take out the State’s 25 per cent shareholding in the airline.

Aer Lingus is an important strategic asset for the country. Air access and connectivity is hugely important to Ireland, particularly across the Atlantic.

At present the Government is an influential shareholder and has two nominees on the board of Aer Lingus. But it will probably cash in its chips.

Based on yesterday’s share price, the State’s holding in the airline was worth about €330 million. It’s a tidy sum but the reality is that it will be probably be swallowed whole by cost overruns in the health service this year.

If IAG is successful, the Government had better get some get some cast-iron guarantees from its chief executive, Willie Walsh, on jobs, the Heathrow slots and transatlantic connectivity in advance. It will have one crack at getting this right.

Of more interest to taxpayers will be the likely sale of shares in both AIB and Permanent TSB.

PTSB set the ball rolling on this last year when it began roadshows in the wake of failing the European Central Bank stress tests. It has a €125 million hole in its capital to fill and is seeking to raise private money rather than tapping the State. The likelihood is that PTSB will raise substantially more than €125 million for a stake of 30 per cent or more. It’s not clear if any of this money will flow back to the State.

In an opinion piece for The Irish Times this week, Minister for Finance Michael Noonan said he expects to get back the money given to the banks by this Government in 2011 over time. This includes the €2.7 billion given to PTSB.

It was a curious statement given that PTSB’s chief executive, Jeremy Masding, has said on a number of occasions that he does not expect taxpayers will get a full return on their bailout money. We’ll have a better view of this when Masding tables his investment proposal. But whatever way you shake the figures, it’s hard to see the State getting its money back in full.

The right backer

PTSB has a 13 per cent share of the retail banking market, selling personal loans, mortgages, current accounts and deposit products. It is planning to dip its toes into the SME space this year. It all helps to keep AIB, Bank of Ireland and Ulster Bank on their toes as we’re now seeing with various offers to new mortgage customers.

Then there is AIB. Its appointment of Goldman Sachs to advise the Government on its capital structure has set the ball rolling. Goldman Sachs has been engaged for at least six months. It will make recommendations on transactions that will then require a decision by the Government before being acted upon. So it will be well into the second half of this year before there will be some real action, which could include an IPO.

At a minimum we should have some progress on the €3.5 billion in preference shares and €1.6 billion in contingent capital notes (CoCos) held by the State, along with a restructuring of the 523 billion of ordinary shares in issue.

In his opinion piece, Noonan said he was “confident that, over time, we will at a minimum fully recover the funds this Government invested in AIB, Bank of Ireland and Permanent TSB”.

By that, he means the €18 billion invested by the Fine Gael-Labour Party coalition in the three banks in 2011. It’s worth noting that AIB received €8.1 billion from the previous administration.

So Noonan is seeking a minimum return of €12.7 billion for the State from AIB, presumably before the next general election. It’s currently valued by the Ireland Strategic Investment Fund at €11.7 billion, plus the €1.6 billion in CoCos.

There are significant long-term implications for the Irish economy and consumers from the sale of the State’s holdings in Aer Lingus, AIB and PTSB.

Here’s hoping this Government breaks with tradition and gets them right.

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