Cantillon: Election weighs down prospect of AIB flotation

Approval from European regulators for AIB to recast its capital base means the Government is on track for a “near-term” return of some €4 billion from the nationalised bank. The State is likely to receive around €2 billion of these proceeds by the close of the year, money which will be used to pay off debt.

Minister for Finance Michael Noonan forecast on Budget day last month that general Government debt would drop to 97 per cent of gross domestic product by the end of 2015. However, there was no allowance for an early AIB return in that projection. The national debt stands at €203.8 billion. Thus the retirement of €2 billion or a little more would reduce the total by around 1 per cent.

Given the expansion of GDP and the possibility that the current tax surge will provide further scope to repay debt, a year-end debt ratio of 95 per cent of GDP now seems to be in prospect. That would be quite a strong starting point for 2016, with another reduction on the way when the remaining tranche of the €4 billion comes in later next year.

Then there is the matter of AIB’s flotation on the stock exchange via an initial public offering of a 25 per cent stake in the bank. That’s the main event from the market’s perspective but it won’t happen until the election is over. After all, running an election campaign and a flotation at the same time is not a good idea.

All signs point to the election being called in mid-January with the poll itself some time in early February. A straightforward deal to form the next government could clear the way for a spring flotation. Still, a prolonged negotiation or a later election could see the IPO held back until the second half of the year. That depends on the politics. In the view of market traders, however, AIB is ready.