EXISTING BANK of Ireland investors could see their shareholdings diluted by as much as 95 per cent if they do not take up the offer to buy new stock under the rights issue announced by the institution yesterday.

As part of its recapitalisation plan, Bank of Ireland plans to raise up to €1.885 billion by offering its shareholders the right to buy new shares in the bank at a discount.

Shareholders have already seen their investments in the bank diluted by about one-third as a result of the Government taking a 34 per cent stake in the institution.

According to the bank’s capital raising announcement, shareholdings will be diluted by up to 95 per cent if an investor decides not to take up any rights issue stock.

The level of dilution will be mitigated to a certain extent for investors who take up their full entitlements. The maximum dilution suffered in this situation will be 46 per cent, according to the announcement.

A spokeswoman for the bank told The Irish Times that it is impossible to tell what the maximum dilution will be until the size of the rights issue, and the price of the new shares, is confirmed.

The new shares will be offered at a discount of between 38 and 42 per cent of the stock market price on May 14th, she said. Full details will be announced on May 17th.

“There may be some disappointment at the dilution, but it’s well anticipated and overall the transaction terms look attractive,” said Sebastian Orsi, an analyst at Merrion Capital. “The money has been effectively raised now. Id expect a good level of take-up of the rights.”

Ciarán Callaghan, of NCB Stockbrokers, said the dilution of existing shareholdings was probably a “necessary evil”, given the level of capital that the bank aims to raise. The bank’s spokeswoman said shareholders will have an opportunity to vote on the proposed rights issue at an extraordinary general meeting on May 19th.

Of the 66 per cent of the bank still owned by private investors, about half is owned by 100,000 small retail shareholders.

Reaction to yesterday’s announcement initially saw the bank’s shares fall by around 4 per cent. However, news that another element of the fundriaisng – a private placement – had been significantly oversubscribed sparked a 10 per cent surge to see the stock close 6 per cent ahead on the day. (Additional reporting – Bloomberg)