BANK OF Ireland plans to assess the appetite among investors for unguaranteed bonds issued by the bank after launching the final part of a €3.56 billion capital-raising plan with a rights issue this week.

From Friday, the bank will send executives out on the road to gauge whether international debt investors would be willing to invest in bonds that are not covered by the State bank guarantee.

The third and final part of its recapitalisation plan, the launch of the rights issue on Thursday, will boost the bank’s capital levels by €2.9 billion, in excess of the €2.66 billion level set by the Financial Regulator in March.

The bank believes this will allow the institution to tap international bond markets with an unguaranteed debt issue later this year, depending on market conditions.

The Irish banks have not issued unguaranteed public bonds since last September, when Bank of Ireland raised €1.5 billion on a partially unguaranteed five-year bond followed by AIB, which sold a €1 billion three-year fully unguaranteed bond later that month.

Minister for Finance Brian Lenihan last year welcomed the banks “taking the first steps” towards issuing unguaranteed term debt into the bond markets.

Bank of Ireland, AIB and State-owned Anglo Irish Bank each have about €6 billion in State-backed debt maturing in September, when the two-year blanket guarantee ends.

The completion of Bank of Ireland’s recapitalisation with the rights issue puts the bank in pole position to issue unguaranteed debt before the expiry of the blanket guarantee, when €25 billion of bank debt must be repaid.

The bank believes investors will be drawn to unguaranteed bond issuances once the bank has been properly recapitalised to cope with higher loan losses, in particular from the transfers to the National Asset Management Agency.

The bank will time the issuing of any unguaranteed debt to avoid any market volatility caused by the euro-zone sovereign debt crisis, which has led to declining equity prices and rising borrowing costs.

The bank has said that its net interest margin is declining due to higher wholesale funding costs as the bank attempts “to disengage in a prudent manner from the Government guarantee”.

Bank of Ireland fell 8 cent, or 5.15 per cent, to €1.45 yesterday after the bank said following close of trading on Friday that it would offer shareholders three shares for every two they own at a price of 55 cent a share in a rights issue.

The shares are being offered at a discount of 62 per cent to yesterday’s closing share price and 41.7 per cent on the expected share price after the rights issue or the theoretical ex-rights price.

“As we expected after the difficulties in the market recently, the rights price comes at the high end of the indicative discount range,” said analysts at Bloxham Stockbrokers in a research note.

The bank intends to raise €1.72 billion, comprising €1.09 billion from retail shareholders and €627 million from the conversion of part of the Government’s €3.5 billion preference share investment.

The rights issue is subject to the approval of shareholders at an extraordinary general court (meeting) in Dublin tomorrow.

The results of the rights issue will be announced on June 9th, a day after subscriptions end.

A further €500 million will be raised from placing shares with institutional investors and €1.04 billion from the conversion of the Government’s preference shares.

An additional €290 million is being raised from swapping debt for new shares in the bank or cash.