Using AIB proceeds to pay down debt best idea regardless of EU rules - Donohoe

Minister for Finance pointed to ‘uncertainty and risks’ in other parts of world

Minister for Finance Paschal Donohoe addressing reporters on Friday. He said the Government must use the proceeds “to get our national debt down at a point in which we’re seeing uncertainty and risks develop elsewhere in the world”. Photograph: Cyril Byrne

Minister for Finance Paschal Donohoe addressing reporters on Friday. He said the Government must use the proceeds “to get our national debt down at a point in which we’re seeing uncertainty and risks develop elsewhere in the world”. Photograph: Cyril Byrne

 

Using the €3.4 billion raised from the AIB IPO to pay down government debt would be in the State’s best interests even if the Government weren’t obliged to do so by EU rules, Minister for Finance Paschal Donohoe said.

Speaking to reporters after the State sold a 28.8 per cent stake in AIB to stock market investors on Friday, Mr Donohoe said the Government must use the proceeds “to get our national debt down at a point in which we’re seeing uncertainty and risks develop elsewhere in the world”.

The Government has consistently rejected suggestions from Opposition parties that it should use the proceeds from the share sale to finance infrastructure, including new home building to ease the housing crisis, saying it must adhere to EU fiscal rules and use the money to reduce its debt level.

“But if those rules were not there, I would still argue that the right thing to do is when we have the ability to get down our debt, we should do it,” Mr Donohoe told reporters in Dublin on Friday afternoon.

“Across the period of the crisis, so many people pointed to the fact that during a time of recession you should have the ability to borrow more, [and] during a time of stability and marginal growth, you should be building your ability to borrow in the future if you need it.”

General Government Debt

General Government debt stood at €200.6 billion at the end of December, according to the National Treasury Management Agency.

Overnight, the Government sold a 25 per cent stake in AIB to investors including sovereign wealth and pension funds, asset managers and small investors - raising €3 billion. Investment banks working on the deal subsequently bought a further 3.8 per cent stake from the State for €400 million and placed those shares on the market.

This entire deal reduces the Government’s stake down to 71 per cent from 99.8 per cent.

Shares in AIB rose by as much as 7.7 per cent to €4.74 on Friday morning in Dublin and were trading 5.8 per cent higher t €4.65 at lunchtime.

“I’m very pleased with the share price,” Mr Donohoe said. “What we are doing here is selling a portion of the bank.”

He said that the “trade-off” for in pricing the share sale, is to ensure that the new investors “feel that they got good value”, as the Government aims to sell further shares in time.

Mr Donohoe declined to say when he might sell further shares in either AIB, Bank of Ireland, in which taxpayers continue to hold a 14 per cent stake, or Permanent TSB, which is 75 per cent State owned.