AIB raises €750m in bond issue to help repay State bailout

AIB raised €750 million in a bond issue on Thursday as part of its plan to start repaying the bailout it received from the State, enjoying strong demand that bodes well for a planned stock market flotation next year.

The Government has pumped €21 billion into AIB since the 2007-2009 financial crisis, the biggest bailout given to any Irish bank still trading, and will recoup an initial €1.6 billion under its capital reorganisation.

As part of the plan, the 99 per cent state-owned bank pledged to issue at least €750 million of Lower Tier 2 (LT2) bonds, its first subordinated offering since it imposed severe losses on subordinated debt holders four years ago.

The bank sold the 10-year paper at a yield of around 4.15 per cent and investors bid for more than €5 billion in the much-anticipated deal, according to one lead banker.

Junior bondholders

The demand came despite the bank having imposed losses of up to 90 per cent on junior bondholders in 2011 to help the Government to cut €5 billion from a bill to save the banks that eventually cost €64 billion euros, or around 40 per cent of annual economic output.

AIB, which almost tripled its first-half pretax profit, said on Tuesday it had generated more capital in the third quarter, reduced its bad loans by more than 10 per cent and increased its net interest margin.

The Government, which has already recouped the cash invested in rival Bank of Ireland and earlier this year returned part of Permanent TSB to private ownership, expects to recover more than it invested in AIB over a number of years.

The bank will repay another €1.6 billion next July when State-owned contingent capital notes (CoCos) mature, and if it is returned to power early next year, the Government will sell a 25 per cent stake on the stock market within months of re-election.

Agri-sector

AIB has also launched its second €500 million loan fund to support the development of Ireland’s agri-sector. Its previous fund, launched in April 2014, has seen more than 90 per cent drawn-down by farming customers for use as working capital, capital expenditure and asset finance requirements.

The latest fund is supported by discounted loans from the Strategic Banking Corporation of Ireland for eligible projects.

The Minister for Agriculture, Food, the Marine and Defence Simon Coveney the high level of drawdown from the first fund was “indicative of the appetite for capital in the farming community”.

Robert Mulhall, AIB’s managing director of retail, corporate and business banking, said: “We are very conscious that 2015 has been a mixed year for farming with volatility a constant feature of the agri business generally. With the consistent decline in milk prices and another low year of margins in the pig sector, we know that farmers may be experiencing cash flow pressure into the spring of next year.”

Reuters