BANK OF IRELAND has offered to buy back debt from subordinated bondholders for 10 per cent or 20 per cent of its original value in return for cash, or double this level if they accept shares instead.
The offer is part of the bank’s efforts to raise €5.2 billion to meet the Central Bank’s capital target.
The bank announced plans to impose losses on the bondholders on Tuesday and released more details yesterday on the offer relating to €2.6 billion of debt.
Analysts estimate that the bank will raise about €2 billion from the liability management exercise.
The bank said the terms of the exercise reflect the Minister for Finance’s aim of ensuring that the bondholders contribute significantly to its capital requirements.
The bank said it will raise up to €2.2 billion in a rights issue underwritten by the State at a price of 10 cent a share. Shares fell by 2 cent, or 13 per cent, to 14 cent.
Holders of tier one debt – the lower ranking of subordinated debt – are being offered 10 per cent of the face value of their investment if they accept cash and 20 per cent for shares.
Subordinated bondholders with tier two debt are being offered 20 per cent of the face value of their investment in cash and 40 per cent if they chose to accept shares.
The bank is offering to pay accrued interest on the share deal.
The exact size of the rights issue will be announced after the completion of the bondholder offer. The amount raised will be €1.76 billion if bondholders chose shares, the bank said, or €2.22 billion if they all chose cash. Subordinated bondholders will be effectively wiped out if they do not accept the cash or shares as they will be paid just 1 cent for every €1,000 of debt they hold.
The bank must raise €4.2 billion of equity and €1 billion of contingent capital by the end of July. The State will provide the €1 billion contingent capital on a five-year instrument, the bank said.
In return, the State will receive a 10 per cent coupon, slightly lower than the interest on the preference shares taken in the bank in its first taxpayer bailout in 2009.
The bank, which is 36 per cent State-owned, said it continued to hold talks with “other sources of private capital on the terms and form in which they may be able to participate in the proposals”.
“The take-up of the rights issue will be extremely low, in our view,” said Oliver Gilvarry, analyst at Dolmen Securities. “The Government will end up a majority shareholder in the bank.”
The price at which the debt converts to equity will be disclosed in the offer prospectus for the rights issue. This will determine the amount of shares they will receive and the dilution of existing shareholders. The higher the conversion price, the less shareholders will be diluted.
The bank did not say whether subordinated bondholders opting to take shares for debt would be able to participate in the subsequent rights issue. Ratings agency Moody’s downgraded subordinated debt at Bank of Ireland, EBS and Irish Life Permanent, classifying the Government debt buyback “distressed” exchanges because they were “coercive” in nature. – (Additional reporting - Reuters)
