THE GOVERNMENT has secured a High Court order to inject €2.7 billion into Irish Life & Permanent by the end of this month, taking control of a fifth Irish bank.
The order allows the Government to invest up to €3.8 billion but it is hoped that the company can raise €1.1 billion through the sale of Irish Life and a debt buyback with junior bondholders.
The consequences were “potentially catastrophic” if the company was not recapitalised by July 31st, the head of bank restructuring at the Department of Finance John Moran warned in an affidavit.
The Central Bank stress tests in March set a capital target of €4 billion, of which €2.9 billion had to be raised by July 31st. The company has raised €200 million.
The €2.7 billion injection will leave the State with a stake of more than 99 per cent.
Shareholders have five days to oppose the order under the Credit Institutions (Stabilisation) Act, the sweeping banking legislation introduced last year which the Minister is using for the recapitalisation.
Piotr Skoczylas, who was voted onto the board of the company last week to represent shareholders opposed to the State recapitalisation, is leading the legal challenge.
About 260 shareholders with more than 18 per cent of the company will oppose the order.
“I can confirm that we will challenge it within the five working days,” said Mr Skoczylas, managing director of the Malta investment firm Scotchstone Capital.
He said they would challenge the order on the basis that the State recapitalisation was “grossly unreasonable” and that the legislation was unconstitutional.
The shareholders want the company to delay the recapitalisation to allow for alternative funds to be sourced from private investors.
Mr Noonan said he was “willing to listen to proposals from, and negotiate with, credible investors” to reduce the cost of the bank bailouts. “In the case of IL&P, the State has not been approached with credible propositions by any such investors,” said the Minister.
Shareholders last week voted to reject the State recapitalisation of the company, which would wipe out the value of their investments.
The order blocks shareholder resolutions passed at last week’s egm to appoint more financial and legal advisers to find other investors and to delay recapitalisation.
The order directs the company to delist from the main Dublin and London stock exchanges and to list on the junior Dublin exchange, the Enterprise Securities Market.
David Barniville SC, for the Minister, told Mr Justice Brian McGovern that the order was necessary as there was no other source for the €2.7 billion, which was required by July 31st under the EU-IMF bailout. Some €2.3 billion will be in cash and €400 million in contingent capital.
Mr Barniville said, as a result of the decision of the shareholders, IL&P was not consenting to the application for the order. The company made submissions which the Minister had considered, he said.
The court was told that the Minister received correspondence from shareholders and two law firms representing shareholders. Mr Barniville said two e-mails were received on Monday night from one shareholder, Liberal Democrat MP John Hemming.
Mr Moran’s affidavit included blacked-out sections where material described as commercially sensitive was redacted.
The State considered options, including nationalisation, but the €2.7 billion injection was the “only viable means” of recapitalising the company by July 31st, he said.Mr Moran described the company’s funding as “more precarious” than most others as it had a loans-to-deposits ratio of 249 per cent.
IL&P’s exceptionally high ratio was the key factor which led to the need to deleverage its loan book by €15.7 billion by 2013, he said.
Without that, IL&P could not reach a more sustainable ratio and the Central Bank’s target ratio of 122.5 per cent by 2013. He said IL&P had become increasingly reliant on ECB funding.
