Bank of Ireland has reduced the amount of capital that it plans to raise through the issuing of new shares in a so-called rights issue this month by almost 10 per cent to about €1.72 billion after generating a capital gain of €233 million by swapping debt for cash or shares.
The bank had originally planned to raise €3.4 billion in capital though a range of measures, including €1.9 billion through a rights issue later this month. However, the bank now plans to reduce the rights offer by €161 million after raising €233 million in the debt-for-cash-or-equity swap – €133 million more than anticipated.
The bank now expects to boost its equity tier one capital, cash reserves held by financial institutions which absorb losses, by a minimum of €2.93 billion. This is in excess of the €2.66 billion the Financial Regulator is forcing the bank to raise to reach the new capital ratios for Irish financial institutions, creating an extra buffer for the bank.
The debt swap is the second of a three-pronged capital-raising programme under which the bank now plans to raise a total of €3.56 billion. The bank also plans to sell €500 million in shares to a group of institutional investors under the programme.
Some €490 million of the money raised will be used to buy back warrants from the State which allows the Government to take a direct stake of about 20 per cent in the bank in four years’ time.
The take-up among investors holding the bank’s debt in the better-than-expected debt swap was 57 per cent. Investors holding €852 million out of a total debt of €1.5 billion eligible in the swap accepted the offer. Some €557 million will be paid in cash to the investors and €61 million in Bank of Ireland shares, leaving the bank with the €233 million capital gain.
The capital boost, which confirms the size of the bank’s rights issue next week, means that the State’s participation in the rights issue will fall to €630 million from €690 million and the participation of public market investors to €1.1 billion from €1.2 billion.
The State will end up with a stake of about 36 per cent, an increase from the existing direct shareholding of 15.7 per cent, if the transaction is approved by Bank of Ireland shareholders at an extraordinary general meeting on May 19th.
The rights issue will be priced next Monday based on the bank’s share price at the close of business on 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 up 18 per cent at €1.68. The stock surged 22 per cent, or 31 cent, to €1.73 at lunchtime.