Wednesday, 17 Nov 2010

Allied Irish Banks Plc, struggling to raise the capital it needs to stay out of government hands, must meet the equivalent of about $1.8bn of early bond repayments before the end of the year.

Bloomberg News reported from London on Tuesday that Ireland‘s second-largest lender, which has a market capitalisation of ¤418m, was able to raise debt this year by giving buyers the right to sell the notes back at face value at set dates prior to final maturity.

The bank said an investor requested the repayment of ¤120m of its floating-rate bonds due in February.

“Payment is a contractual obligation when the bond is put back to the issuer.” A banking analyst at CreditSights Incorporated in London, Mr. Simon Adamson, said. ”Failure to pay would be an event of default.”

Ireland, which has to pay for a banking bailout that may cost as much as ¤54bn, is in talks with European and International Monetary Fund officials about a bail-out, said a European official with direct knowledge of the talks.

The country‘s banks need to raise capital after bad debts surged amid the collapse of a decade-long real estate boom.

The Irish banks were able to raise small amounts of debt this year with the aid of a government guarantee, typically selling notes with maturities of 12 months or less, giving buyers a put option, acted as an added guarantee.

Of the three main Irish lenders, Allied Irish sold the most short-term debt with near-dated puts, Bloomberg data show.

Bank of Ireland still has the equivalent of about $190m of bonds with puts outstanding next year. Anglo Irish Bank Corporation, recipient of the nation‘s biggest banking bailout, has none.

Allied Irish has the equivalent of ¤104m of regular bonds still to mature this year.

Ireland‘s financial regulator told Allied Irish earlier this year to raise ¤10.4bn of new capital by year- end.

Executive Chairman, Mr. David Hodgkinson, who is seeking to sell assets to raise cash, said this month, that he plans to independently stress-test the company‘s balance sheet, spurring concern the bank may be fully nationalised.

Source: Punch