Irish Life and Permanent will be effectively nationalised with the injection of up to €3.8 billion in State funds by the end of next month, the company has confirmed.

The company told shareholders in a circular published today that it proposed issuing up to €3.4 billion in ordinary shares and a further €400 million in contingent capital to the Government, leaving the State with a shareholding of more than 99 per cent.

As a result, the company will delist from the main Irish stock exchange and expects to re-list on the junior Irish market, the Enterprise Securities Market, on August 22nd. An extraordinary general meeting will be held on July 20th to approve the issuing of the ordinary shares to the Minister for Finance.

The State will inject the capital to meet the €4 billion capital target set by the Central Bank following the stress testing of the banks last March before a deadline of the end of July under the terms of the bailout by the European Union and the International Monetary Fund. The company made a gain of €300 million from a debt buyback in May.

The company said that its board had decided to take the capital injection from the State "having taken legal and financial advice", believing it to be "in the best interests of the company and the shareholders as a whole, given the lack of alternative options available to raise the required capital by July 31st 2011".

Irish Life and Permanent warned that if shareholders do not vote for the State recapitalisation, its directors believed that Minister for Finance Michael Noonan would be likely to use the Credit Institutions (Stabilisation) Act 2010 to ensure that the company would be able to meet its capital requirements.

"The timing of any such intervention would be at the discretion of the Minister for Finance and the Irish High Court and therefore not within the control of the directors," the company said.

The State capital injection will not affect the sale of Irish Life, the company's life assurance business. It's understood that the company will issue an information memorandum relating to a trade sale of the company in the coming days.

Irish Life and Permanent will be the fifth Irish financial institution to come under Government control. Bank of Ireland, which is 36 per cent owned by the State, is trying to raise enough capital from private investors to avoid majority State ownership.