Following approval of AIB’s capital reorganisation at a shareholder EGM yesterday afternoon the State is to receive €1.64bn in cash from the successful completion of the transaction today. This transaction marks the first meaningful return of capital to the State from its investments in AIB and completes the reorganisation measures which were approved by the SSM in November.
Welcoming the transaction the Minister stated:
“Today represents a significant milestone for the State and its investments in AIB. At the beginning of 2015 we set out an ambitious agenda to start the process of recovering the taxpayer’s investment in AIB. We worked with AIB to reconfigure the bank’s capital structure to make it fit for purpose and to also agree a roadmap to see the bank begin to return capital to the State. This piece of work is now complete – the return of significant capital to the State has commenced and AIB now has a strong market facing capital structure that will enable the State to maximise value for the taxpayer in any future exit event. As outlined in November, we expect further payments of income and capital from AIB in the near future, including €1.6bn due to be repaid to the taxpayer when the Contingent Capital Instrument matures in in July 2016.
The overarching objective of this Governments banking strategy I set out in March 2011 was to have a functioning and stable banking system, operating in support of the Irish economy and to reduce the cost of the banking bailout on the Irish taxpayer. It is clear from this transaction and other events that this strategy is working. Notwithstanding this significant payment to the State, the Irish Taxpayer still retains 99.8% of the shares in AIB, an investment with a value currently estimated at €11.7bn. The bank has returned to profit, the economy is growing at the fastest rate in Europe and I am advised by my Department that we will recover the taxpayer’s full investment in AIB in the years ahead.
Together with the strong tax performance this year, this and other revenues arising from our investments in the banking sector mean that the Exchequer will be close to balance in 2015, the first time it has been in this position for nearly a decade. These revenues will also reduce the Exchequer Borrowing Requirement and subsequently reduce Ireland’s debt ratio by almost 1% of GDP in 2016. The success of our fiscal strategy and in divesting our strategic banking assets, means that Ireland’s debt is now forecast to fall to 92% of GDP, in line with the euro area average. Only two years ago, this figure stood at 120% of GDP, which shows just how far we have come.“
Ends
17th December 2015
Notes to Editors
How much have we recouped to date from our investment in AIB?
This transaction marks the first return of capital to the State, however we have received almost €3bn in relation to guarantee fees, transaction fees and interest income on our investments to date. This brings the total recouped from the bank since 2008 to c.€4.6bn.
In addition to this cash, the State also retains €1.6bn in Contingent Capital Notes which will be redeemed in 2016. The State also estimates that the value of our remaining equity investment in the bank was c.€11.7bn for the purposes of the Preference Share Conversion.
What is included in the payment received today?
This payment of €1.64bn represents proceeds of €1.7bn from the redemption of €1.36bn of Preference Shares along with accrued interest of c. €165m. Deducted from this is c.€225m which represents the cost of redeeming the outstanding EBS Promissory Note.
Does this mark the end of the engagement with Goldman Sachs on the project?
Completion of the Capital Reorganisation also marks the end of our engagement with Goldman Sachs.
What fees did Goldman Sachs earn on the project?
The Department engaged Goldman Sachs on a pro bono basis for their work on the project and would like to take this opportunity to thank them for their work.
Have Independent Financial Advisor been appointed to assist with the next phase of the project?
To assist us in the next phase of our work to recover the taxpayers’ investment we have today appointed Rothschild as Independent Financial Advisor to my Department, following a tender competition. Rothschild will assist the Department of Finance over the coming year to ensure that the next Government is given full optionality in relation to its investments in AIB in the best interest of the Irish Taxpayer.
How was the Independent Financial Advisor selected?
This appointment was made on foot of a tender competition launched in late November, involving all of the members of Lot 1 of the Department’s financial advisory panels which were constituted following an open procurement procedure in October 2014.
What will the Independent Financial Advisor do?
The IFA will provide advice on the options open to the state in relation to our significant shareholding in AIB. The work will include an assessment of sale options and their mechanics, timing and valuation considerations etc.
Why is this happening now? Does this mean that AIB will be IPO’d in 2016?
There is a considerable amount of work to be done in assessing the options available to the State and understanding the optimal exit route (s) for the taxpayer. Minister Noonan has said on a number of occasions that any sale of shares following AIB’s capital reorganisation will be a decision for the next government.
