IRELAND - The National Pension Reserve Fund (NPRF) has received almost two million shares in Allied Irish Banks (AIB) worth €250m instead of an annual €280m cash payment.
As part of the deal last year that led to the NPRF investing €3.5bn in AIB, alongside a €3.5bn investment in the Bank of Ireland, as part of a recapitalisation programme, the organisation received preference shares in the bank with a fixed coupon rate of 8%. (See earlier IPE article: NPRF contributions to fund €7bn banking rescue)
However, as the European Commission is currently considering the restructuring plans of AIB and the Bank of Ireland, it has requested that discretionary coupon payments on tier one and upper tier two capital instruments - including the preference shares - are not paid while it is reviewing the programme. (See earlier IPE article: Irish roundup: Bank of Ireland, AIB)
The Commission does not object to paying the coupon in shares, so instead of €280m in cash the NPRF is receiving 198,089,847 ordinary shares, resulting in the state pension reserve now holding 18.6% of the AIB ordinary share issue.
Brian Lenihan, minister of finance, said the share issue "ensures that taxpayers are remunerated in a timely fashion for their investment in the bank".
He also confirmed the €280m in ordinary shares issued to the fund "will count towards the additional €7.4bn equity capital requirement determined by the Financial Regulator so that AIB will meet the new base case capital standards".
Lenihan announced in March that if AIB could not raise sufficient capital to meet the new requirements through the sale of its assets and private capital the state would convert some or all of its preference shares on terms providing full value to the state. However, if AIB required further assistance from the government the NPRF would be directed to further invest in AIB ordinary share capital. (See earlier IPE article: NPRF may have to further subsidise AIB)
The Bank of Ireland, which is in a more stable financial position than AIB, has already benefited from the conversion of some preference shares and the purchase of ordinary share capital in April that increased the NPRF's investment in the bank to around 36%. (See earlier IPE article: NPRF to increase holding in BoI to 36%)
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