ALLIED IRISH Banks (AIB) has raised €1 billion from investors in the first sale of an unsecured, non-guaranteed bond since the introduction of the Government bank guarantee last September.
The bank is paying 250 basis points or 2.5 percentage points over the benchmark mid-swaps rate for the three-year bond, which was 2.9 times over-subscribed among investors.
This compares with a spread of 55 basis points paid by AIB on €2 billion raised in a two-year guarantee bond issued last November.
More than 230 investors participated in the issue “reflecting a well diversified geographic profile”, the bank said in a statement.
A spokeswoman for the bank added that 10 per cent of the investors were Irish, and that there was a strong representation from UK and European investors.
Colm Doherty, managing director of AIB’s capital markets division, said: “The positive reaction of the international markets by investing in unsecured and unguaranteed bonds of AIB reflects the clarity and certainty brought by Nama.”
Mr Doherty, one of the candidates being considered to succeed AIB chief executive Eugene Sheehy, said the deal represented “a very significant step towards the normalisation of the international credit markets stance towards Irish banks and bodes well for future unguaranteed issuance from the Irish financial system”.
The price paid by AIB is higher than the cost of a €1.5 billion bond raised a fortnight ago by Bank of Ireland, which paid 190 basis points over the mid-swaps rate.
However, that bank’s bond was covered by assets where AIB’s bond is unsecured.
A bond analyst said AIB’s debt issuance was “a positive step for Ireland” and a further sign that international investors are willing to take risks on the Irish banks.
He said he expected Bank of Ireland to follow with the raising of a similar unsecured bond within the next month.
AIB’s share price fell 1.8 per cent to €3.19, while Bank of Ireland declined 1.8 per cent to €2.95.
The Government said last week that the State’s bad loans agency, Nama, will buy €24 billion in property loans from AIB and €16 billion from Bank of Ireland.
Both banks will pay below the average industry discount of 30 per cent, but the sale is expected to leave both lenders with larger losses and requiring additional capital, which they can raise privately in the first instance.
The Government has welcomed Irish banks issuing unguaranteed term debt as “a positive trend”.
It plans to modify the existing guarantee scheme covering bank debts for up to five years once the debts have been incurred between the enactment of the extension and before September 2010 when the original guarantee will expire.
Minister for Finance Brian Lenihan said last week that the revised bank guarantee scheme would be “the necessary first step in the exit strategy for the State from the blanket guarantee”.
The Government is expected to charge financial institutions a higher fee to raise protected debt under the extension of the bank guarantee scheme scheme.
