Bank of Ireland will raise between €500-600m of equity as early as next week as part of a key refinancing of €1.8 billion of state preference shares, according to reports from Reuters today.
The bank faces a March 2014 deadline to refinance the shares before a clause under its State bailout kicks in, increasing the cost of buying them back by 25%, or €450m.
The State has a 15% stake in the bank.
It will raise the equity through a placement, rather than a rights issue, to retire around a third of the preference shares with the balance made up from the sale of a debt instrument to private investors at a profit to the State, a source familiar with the deal said.
In a statement the bank said it noted media reports on the matter and said that it “continues to proactively formulate and assess a range of options in relation to the 2009 preference shares… carefully taking into consideration our various stakeholders, including the regulatory authorities”.
It said the sale of the State’s preference shareholding to private investors was one option in this, but said “no firm conclusions have been reached and there is no certainty that any transaction will proceed.”
The deal is unlikely to happen before the Thanksgiving holiday this week due to a large amount of US investor interest and until Irish banks get the results of a balance sheet assessment carried out by the Central Bank.
The banks will get the results of the assessment this weekend and Bank of Ireland will likely give the market an update on the outcome when it announces the transaction.
A successful refinancing of the preference shares would be a big milestone for the bank, the sector and for the Government ahead of its exit from an €85 billion EU/IMF state bailout next month.
Bank of Ireland was the only domestically owned lender to escape full state control after a group of North American investors led by Wilbur Ross and Prem Watsa bought a 35% stake just months after Ireland signed up to an EU/IMF bailout three years ago.
The Government sold €1 billion of Bank of Ireland debt earlier this year to further cut its exposure to the bailed-out bank and would be left with a residual 15% equity stake after the preference share transaction.