SHAREHOLDERS IN Bank of Ireland will be offered the chance to buy new stock in the bank for just 55 cent each as part of a €1.1 billion public rights issue.
The move is intended to help the bank meet new capital ratios set down by the Financial Regulator.
The bank last night revealed details of the public rights issue, which involves offering shares at a discount of 64 per cent on Bank of Ireland’s closing price in Dublin on Friday of €1.53.
This is broadly in line with market expectations on pricing of the share issue. The public rights issue will result in shareholders, other than the State, being given the opportunity to buy three new shares for every two they hold.
The Government, through the National Pension Reserve Fund, will separately contribute about €627 million to the rights issue by converting existing preference shares at €1 apiece. This will bring the total proceeds from the rights issue up to €1.723 billion.
The bank will sell 3.14 billion new units of ordinary stock to raise these funds.
The State owns 16 per cent of Bank of Ireland, but will end up with a stake of 36 per cent if shareholders approve the rights issue.
The rights issue is being underwritten by five institutions – Credit Suisse, Citibank, UBS, Deutsche Bank and Davy. It is also sub-underwritten by 50 international institutions.
It is a key plank in the bank’s efforts to raise €3.4 billion to satisfy new capital ratios set down by the Financial Regulator on March 30th.
The fundraising is conditional on bank shareholders giving their approval to the plan at an extraordinary general meeting to be held in Dublin on Wednesday.
While there is likely to be some shareholder disquiet expressed at the egm, the rights issue is expected to get the green light from investors.
If approved, the bank’s shareholders will have until 11am on June 8th to take up their allocation. Shareholders will also have the opportunity to sell on some or all of their rights to the new shares through stockbrokers as part of the issue process.
The offer means that a shareholder who owns 1,000 shares in the bank will have the opportunity to buy 1,500 shares for a total cost of €825.
Bank of Ireland’s shares closed down 4.7 per cent in Dublin yesterday as concerns about the health of euro-zone economies led to a major sell off of stocks.
The Iseq finished 4 per cent lower yesterday and the euro slumped to an 18-month low against the dollar.
Details of the rights issue will be announced to the stock market on Monday morning when the Dublin and London exchanges open.
The pricing of the rights issue represents a discount of 41.7 per cent to the theoretical ex-rights price as calculated by reference to the closing price of the bank’s ordinary stock on May 14th.
Earlier this week, the bank generated a gain of €233 million in a better-than-expected take-up of a debt swap for cash or shares in the bank. This allowed it to reduce the amount it had planned to raise from the rights issue by 10 per cent.
Bank of Ireland expects to boost its equity tier-one capital – cash reserves that are held to absorb losses – by at least €2.9 billion, in excess of the €2.66 billion demanded by the Financial Regulator.
On April 26th, it announced plans to raise a minimum of €3.421 billion equity tier-one capital. This was to include an institutional placing of €500 million, a firm placing with the State of €1.036 billion and the rights issue.
