A little-remembered financial instrument designed to avoid future red faces in government from any share price surge following an initial public offering (IPO) in AIB in 2017, may help avoid another form of embarrassment.
AIB chief executive Colin Hunt said on Wednesday the bank plans to buy back a further €1.2 billion of shares from the State in May. The Government can look forward, in the meantime, to more than €100 million of dividends, stemming from its current 12.4 per cent holding in the bank.
Adding in the €18.5 billion of cash that taxpayers have already recovered from AIB, the total is set to reach €19.8 billion.
We are talking about a simple cash-in, cash-out recovery here – which also includes proceeds from an initial public offering in 2017, redemption of bailout bonds, interest, guarantee fees and dividends received from the bank.
The State’s remaining 5 per cent stake, after the buyback, is currently worth €790 million – meaning it remains more than €200 million under water on its €20.8 billion crisis-era investment.
However, a bunch of stock warrants issued to the Government in 2017 and long since forgotten by many observers, given that they have been underwater for the past eight years, may prove key.
AIB handed the warrants to then minister for finance Paschal Donohoe in 2017, giving the State the right to buy back up to a 9.99 per cent stake in the bank if it doubled in value in the space of a decade from its €4.40 IPO price. They were designed to avoid officials being embarrassed in the event of a massive surge in AIB’s share price after the IPO.
The strike price is now about €6.80 (adjusted for the impact of share buy-backs – carried and planned), AIB chief financial officer Donal Galvin said on Tuesday. They reached break even point on Wednesday as AIB shares surged on better-than-expected 2024 results.
Galvin and Hunt said they plan to negotiate with the Government on buying back the warrants in the coming months. They signalled that it may equate to about 0.4 percentage points of capital. That amounts to about €250 million. The calculation is based off a warrants and stock options pricing model known as Black Scholes.
Taking out the warrants may be the missing part of the jigsaw in terms of Donohoe, recently returned as Minster for Finance, recovering the full €20.8 billion rescue bill.
