http://www.reuters.com/article/2011/06/27/...0110627?type=companyNews
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Mon Jun 27, 2011 12:38pm EDT
* IL&P to delist from main Irish, UK stock exchanges
* Bancassurer to sell Life business in coming months
* Will become fifth lender taken over by state (Adds trader comment, detail)
By Padraic Halpin
DUBLIN, June 27 - Irish Life & Permanent (IL&P) advised shareholders to accept an effective nationalisation of the bancassurer or risk its collapse in the face of a near 4-billion euro ($5.7 billion)capital hole and reliance on emergency central bank lending.
Once feted as the only Irish bank to avoid a state bailout due to its lack of exposure to property developers, IL&P's business model came unstuck when the country's lenders were locked out of debt markets, creating a huge funding strain for its residential mortgage book.
Stress tests agreed as part of an EU-IMF bailout in March showed the bancassurer needed to raise 4 billion euros in extra capital, sending its share price nosediving from 1 euro at the end of December to less than 20 cents.
IL&P, which was relying on the European Central Bank for 30 percent of its funding at April 30 -- and had the highest loan-to-deposit ratio in the industry at 218 percent on the same date -- was trading at 6 euro cents on Monday,
That was a far cry from the 18 euros it hit in early 2007 when Ireland's property bubble was at its height.
"It's a lost cause. The stock is worthless," said one trader.
The company plans to sell its cash-rich life insurance arm, with an embedded value of around 1.6 billion euros, but with nearly three-quarters of the additional capital due by the end of July, the government is the only option.
"The board believes ... state investment is the only viable alternative for the company and ... given the risk of further value destruction in the event the proposals are not implemented, recommend shareholders vote in favour," Irish Life & Permanent's chairman Alan Cook wrote in a letter to investors.
"Following the state investment, the minister (for finance) is likely to own in excess of 99 percent of the ordinary shares of the group."
Shareholders will vote on the proposals, which involve the government pumping in 2.7 billion euros -- 2.3 billion euros via ordinary shares and some 400 million euros via a contingent capital note -- before the end of July.
The Emergency General Meeting (EGM) will be held on July 20. IL&P has raised 200 million euros towards its 2.9 billion euros end-of-July bill from internal resources.
The state capital injection would see IL&P delist from the Irish and London stock exchanges on Aug, 19 and move to Ireland's secondary Enterprise Securities Market (ESM), where shares of state-run Allied Irish Banks now trade.
Cook warned that if shareholders voted down the plans the government could use sweeping new powers to inject the capital on less favourable terms, and there was no guarantee the shares would trade on the ESM.
The expected injection means Ireland will have taken over five of its once six-strong domestic banking sector by the end of next month, with Bank of Ireland struggling to avoid making it a clean sweep.
Under the plans, the Irish government will subscribe 2.3 billion euros for 36.2 billion shares at about 6 cents each.
If the group fails to raise 1.1 billion euros by selling its life business and imposing losses on junior bondholders, the state will provide that amount by subscribing for shares, also at 6 cents, on a date to be specified by the central bank or government.
Selling the life business, likely via a trade sale, will offset some of an expected 1 billion euros capital gain from imposing losses on junior bondholders, because the life business contributed to IL&P's capital reserves.
The contingent capital note to be issued by the government is a five-year subordinated, unsecured security with a 10 percent coupon, similar terms to a 1 billion euro note to be issued for Bank of Ireland.
Dissident shareholders in IL&P said last week they requested an EGM to change the bancassurer's recapitalisation plans.
None of the resolutions put forward by the group, which claims to represent over 14 percent of the bancassurer's share capital, were included in proposals for the July 20 meeting.
The company said on Monday the minister for finance could apply for a court order to approve the eventual sale of the life business, bypassing the need for shareholder approval. ($1 = 0.698 Euros) (Writing by Carmel Crimmins; Editing by David Hulmes) |
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