BofI sheds almost 14% despite bond issue

BANK OF Ireland’s share price fell by 13.8 per cent yesterday despite the bank announcing it had raised €700 million in capital by issuing new bonds to replace about €1.4 billion in existing debt.

Bank of Ireland needs to raise an additional €2.2 billion by the end of February to meet new capital ratio targets set by the Central Bank of Ireland as part of a wide-ranging restructuring of the financial sector here, which forms part of the State’s bailout with the European Union and the International Monetary Fund.

This debt exchange means Bank of Ireland is now about one-third of the way towards meeting its new target.

Under the terms of the deal announced yesterday, Bank of Ireland has issued two new 13-month Government-guaranteed senior securities of about €700 million.

They are a €500 million bond with a 6.75 per cent coupon and a £173 million (€204 million) bond with the same interest rate.

Both have a maturity date of January 30th, 2012.

They will replace about €1.4 billion in existing tier-two debt. The bonds involved were trading in the secondary market at significant discounts to their original prices. Subordinated bonds are usually given a higher rate of interest as they run more of a risk of not being repaid.

The new debt replaces four euro-denominated securities, four sterling and one dollar security. The expected settlement date for the exchange is December 30th.

Bank of Ireland said the new notes were expected to be rated “Baaa1 (negative outlook)” by Moody’s.

Bank of Ireland has until the end of February to raise funds to bring its capital ratio over 12 per cent – the new level expected internationally. The bank is aiming to raise funds through its own internal means and from existing shareholders.

The Government will underwrite its latest fundraising effort. If Bank of Ireland fails to meet its €2.2 billion target, the State will take majority ownership.

The State already holds a 36 per cent shareholding in Bank of Ireland through the National Pension Reserve Fund.

Bank of Ireland’s share price closed yesterday in Dublin at 31.9 cent.