BANK OF IRELAND has cut the capital it plans to raise from shareholders in a rights issue by almost 10 per cent after generating a gain of €233 million in a better-than-expected take-up of a debt swap for cash or shares in the bank.

The bank had originally planned to raise €1.89 billion through a rights issue of new shares but has reduced this by €161 million to €1.72 billion after a debt swap.

Some €133 million more than expected was raised in fresh capital in the swap in the second part of a three-pronged plan. The bank now expects to raise €3.56 billion – about €160 million more than initially planned – to meet new regulatory capital levels this year.

The bank expects to boost its equity tier one capital – cash reserves held to absorb losses – by at least €2.93 billion, in excess of the €2.66 billion demanded by the Financial Regulator after expenses and the purchase of State warrants for €490 million.

The bank plans to sell €500 million in shares to institutional investors under the capital-raising plan.

Investors holding €852 million out of a total debt of €1.5 billion eligible in the debt swap accepted the offer, representing a take-up of 57 per cent in the deal. Some €557 million will be paid to the investors in cash and €61 million in new shares through the rights issue.

The gain from the swap, which confirms the size of the rights issue at €1.72 billion, means that the State’s participation in the bank’s issuing of new shares will fall to €630 million from €690 million and the participation of retail investors to €1.1 billion from the €1.2 billion originally planned.

The State will end up with a stake of about 36 per cent, an increase from the existing holding of 15.7 per cent, if the transaction is approved by the bank’s shareholders at an egm on May 19th.

The rights issue will be priced next Monday based on the bank’s share price at the close of business this Friday. Details of the terms of the rights issue will be announced next week. It is expected that shareholders will be offered the opportunity to buy new stock at a discount of about 60 per cent to the bank’s current share price.

Shares in Bank of Ireland closed 18 per cent higher at €1.68. The bank has raised €1.7 billion by swapping debt over the past year.

The rights issue is being under-written by five companies – Citibank, UBS, Deutsche Bank, Credit Suisse and Davy stockbrokers – who have in turn signed up about 50 international institutions as so-called sub-underwriters.