UPDATE 3-Bank of Ireland plan sees state as minority owner

* Needs to raise 2.7 bln euros of capital

* Bank plans rights issue, placing, share/debt conversion

* Seen raising additional funds to buy back state's warrants

* Shares up 0.44 percent, outperforming sector/Irish index

(Adds shares, analyst comment)

By Andras Gergely

DUBLIN, April 22 (Reuters) - Bank of Ireland (BKIR.I) has started talks with investors on a plan to raise 2.7 billion euros ($3.6 billion) of capital featuring a rights issue which should leave the state as a minority owner.

Ireland's biggest bank by market value needs to raise the capital to satisfy new regulatory requirements and compensate for writedowns on discounted loan transfers to the National Asset Management Agency (NAMA), a "bad bank". [ID:nLDE62T0L9]

Bank of Ireland said it was considering a combination of a rights issue, an institutional investor placing, a conversion of part of the state's preference shares into ordinary equity and "liability management", which usually refers to buying back or swapping cheap debt to raise capital.

"Based on the current envisaged structure, the bank expects that the state would continue to be a minority shareholder in the bank," Bank of Ireland said in a statement.

The plan could make Bank of Ireland the only one of NAMA's five participants to escape majority state ownership, with the bulk of the new capital Irish banks need -- up to 32 billion euros -- likely to come from the government.

Bank of Ireland shares rose 0.44 percent to 1.83 euros by 0926 GMT, outperforming a 1.67 percent weaker European banking sector .SX7P and a flat Irish market .ISEQ.

"This is likely to be one of the more complicated fund raisings seen in the European sector in recent years, but will be the most important transaction seen in Ireland in the past 10 years," Bloxham Stockbrokers said in a note to clients.

NEW CAPITAL REQUIREMENT

The bank did not provide any figures for the capital raising plan but Goodbody analyst Eamonn Hughes said it could raise 1.7 billion euros in a rights issue, 500 million euros via the placing and 400 million euros through the exchange of hybrid debt.

The state could convert 560 million euros of its 3.5 billion euro preference shares into ordinary equity, Hughes said.

Another Dublin-based brokerage NCB said the rights issue could be for 1 billion euros and it pencilled in a bigger preference share conversion.

"Existing shareholders would (then) own less than 50 percent of the post recapped bank", NCB analyst Ciaran Callaghan said.

A new minimum capital requirement of 8 percent announced last month and the cleansing of balance sheets via the bad bank means participating banks and building societies need to raise at least 22 billion euros in fresh capital between them. [ID:nLDE62T0L9]

Nationalised Anglo Irish Bank [ANGIB.UL] is receiving 8 billion euros from the state, on top of a 4 billion euro bailout last year and it could need another 10 billion euros. That would take the total industry tally to 32 billion euros without accounting for last year's bailouts worth 11 billion euros.

Allied Irish Banks (ALBK.I), the second biggest by market value, is selling some of its valuable overseas assets and could still end up in majority state ownership. Bank of Ireland is also selling some profitable units to get EU approval for its bailout. [ID:nLDE63F06Q]

Some analysts expect Bank of Ireland to raise up to 500 million euros on top of the 2.7 billion euros it needs as capital to buy back warrants to its bailout last year which entitled the government to buy up to a quarter of the ordinary shares then in issue.

The state has acquired an ordinary stake of almost 16 percent in Bank of Ireland as a by-product of a European Union ruling which stopped the bank from paying interest on some bonds and cash coupon payments on the preference shares pending a verdict on its restructuring plan. [ID:nLDE61I0IK] (Reporting by Andras Gergely; Editing by Michael Shields and Sharon Lindores) ($1=.7439 Euro)