IRISH LIFE and Permanent is in talks to hire four banks, including Citigroup and Deutsche Bank, to underwrite a rights issue to raise €925 million for a possible merger of its banking division, Permanent TSB, with EBS building society.
The group is one of four bidders for EBS with the race set to narrow to two bidders – IL&P and one of three private equity groups.
IL&P is also in talks with Royal Bank of Scotland and stockbrokers Davy to manage the share sale which will only proceed if the company’s bid for EBS succeeds.
The building society requires capital of €785 million to meet the Financial Regulator’s new capital levels to cover losses on the sale of €1 billion in loans to the National Asset Management Agency (Nama).
The Government has taken control of EBS by injecting €100 million and committing a further €350 million by way of promissory notes or State-backed IOUs.
Minister for Finance Brian Lenihan has said the Government is willing to provide the remaining €435 million of capital required if it is not provided by a potential buyer of the institution.
“We’ve indicated that we will undertake a rights issue in the event of engaging in a transaction involving EBS,” said a spokesman for Irish Life. “Naturally, we have undertaken relevant detailed preparations for such an issue which are now at an advanced stage.”
The three other bidders circling EBS are US buyout firm JC Flowers; UK firm Doughty Hanson; and a private equity consortium led by Dublin-based Cardinal Asset Management and comprising US group Carlyle and New York firm WL Ross, headed by billionaire investor Wilbur Ross.
ILP, which avoided lending in property development, is the only domestic bank not transferring loans to Nama or getting State capital. Ireland’s biggest mortgage lender, Permanent TSB, is loss-making but has been propped up by the group’s profitable Irish Life business, the country’s largest pensions and investments company.
The Financial Regulator said last month IL&P had to raise €145 million by May 2011 after carrying out a worst-case-scenario stress-test on the bank’s loans. Shares in IL&P remained flat at €1.59, valuing the group at €441 million.
The Government’s decision to underwrite a rights issue at AIB next month, effectively nationalising the bank, may have a beneficial effect on IL&P’s ability to raise capital. – (Additional reporting, Bloomberg)
