* Irish lender pays back EUR1.8bn of state aid
* US, UK investors flood equity and pref share sale
* Irish government books profit on bailout
By Aimee Donnellan and Graham Fahy
LONDON, Dec 6 (IFR) - Bank of Ireland took a giant leap
forward in its plans to return to mainstream banking this week
when it successfully repaid EUR1.8bn of state aid, breaking free
from the clutches of a government that supported it through the
The Irish lender executed a two-pronged plan to re-market
EUR1.3bn of state-owned preference shares and sell EUR580m of
equity, building on strong momentum in the capital markets that
is making riskier instruments more attractive to yield-hungry
"This is pretty much closure for Bank of Ireland following a
very tough story during the crisis," said Sandeep Agarwal, head
of EMEA DCM at Credit Suisse.
"These deals achieved a favourable outcome and follow-on
secondary performance that speaks to the depth of the market and
the confidence investors have in the Irish story."
The bank, which narrowly avoided a full state bailout and
infamously burnt its bondholders during the height of the
crisis, has been on a fast track to rehabilitation over the past
year. It has regained access to every part of debt capital
markets, selling covered, senior and Tier 2 bonds, while the
government also managed to re-market a CoCo it took on as part
of the rescue process.
This week's package allows the bank to redeem EUR537m of
government-held preference shares and move the remaining
preference shares into the hands of private investors. The bank
now expects to redeem the preference shares in 2016 from
"This remarketing exercise and equity sale have given us
great clarity on the future of the group, and the improvement in
our net interest margins provides strong momentum towards
sustainable profitability," said Donal Collins, head of group
strategy at Bank of Ireland.
US and UK asset managers clearly believe in the bank's
recovery, putting in EUR1.7bn of orders for the equity sale and
around EUR10bn for the preference shares.
"Bank of Ireland has come a long way in restoring its
capital levels, even though asset quality is still a concern,"
said Georg Grodzki, head of fixed income at Legal & General.
"I think investors that are buying this instrument are
taking a bet that the issuer will return to profit and pay them
back in the coming years. There's a reasonable chance that this
will indeed be the case."
The preference shares were priced at 104.5, while the equity
was priced at EUR0.26.
Proceeds of the equity issue provide the government with a
tidy profit - and good news to placate weary taxpayers who had
pumped EUR4.8bn into the bank when it was partially bailed out.
The government made a profit of EUR62m on its investment in the
preference shares, alongside accumulated interest of around
The sale package removes a restriction that prevented the
payment of dividends on the bank's ordinary shares while the
preference shares were held by the state. This normalises the
bank, giving it greater autonomy to decide when and how it
handles payouts to shareholders.
"We are a strong bank in an evolving market," said Sean
Crowe, head of group treasury of Bank of Ireland. "The
government is now in a net positive cash position from its
bailout of Bank of Ireland and continues to hold a discretionary
stake in the bank."
By unwinding the state's position in the preference shares
ahead of a March 31 deadline and structuring the sale using a
special purpose vehicle, the bank has avoided a step-up premium
that would have made redeeming the shares 25% more expensive.
The government retains a 14% stake in the bank.
"This is a situation where everyone is happy, which does not
happen every day," said Mauricio Noe, managing director,
financial institutions group at Deutsche Bank.
"The government achieved a price way above par and investors
got exposure to a credit in which they have confidence. It
proves that this name is definitely no longer in high-beta
territory any more."
The deal follows a steady stream of more positive economic
news in Ireland, including the fastest fall in unemployment in