AIB floats at 56% higher market value than Bank of Ireland

AIB is set to return to the main stock markets in Dublin and London on Friday with a market value of €11.94 billion, some 56 per cent above that of rival Bank of Ireland, the country’s only bailed-out lender to avoid falling under State control during the financial crisis.

Sources familiar with the transaction said on Thursday evening that shares being sold in AIB’s initial public offering (IPO) were set to price at €4.40 each, the middle of a price range outlined by the Government last week before AIB’s management, led by chief executive Bernard Byrne, started a global roadshow aimed at potential large investors.

The price of Europe’s largest IPO so far this year equates to about 93 per cent of the value that analysts, on average, estimate AIB’s net assets will be worth at the end of 2017.

The higher market capitalisation for AIB compared to Bank of Ireland is partly based on a market view that it has a higher level of “excess” capital on its balance sheet, which analysts at US investment bank Keefe, Bruyette & Woods estimate will exceed €3 billion by 2019. The expectation is that much of this can be returned to shareholders by way of special dividends or share buy backs in time, subject to regulatory approval.

Deferred tax assets

Its valuation also reflects the fact that AIB has a stock of about €3 billion of losses accumulated during the financial crisis that it can use to slash its tax bill for up to three decades. Bank of Ireland, on the other hand, had €1.3 billion of so-called deferred tax assets on its books as of the end of December.

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Bankers and corporate financiers advising on the share sale, led by Deutsche Bank, Davy and Bank of America Merrill Lynch, were preparing on Thursday to work late into the night with Department of Finance officials from Davy’s offices in central Dublin on allocating stock to various new investors.

A spokesman for the Department of Finance declined to comment, saying the price of the deal will be communicated to the market at 7am on Friday.

Small investors, who had to commit to buying at least €10,000 of AIB shares to participate, and who mainly faced an earlier deadline of Tuesday evening to place an order, will end up with about €300 million of the stake being sold. That equates to about 75 per cent of the total amount of stock this category of investors subscribed for.

Small investors

It is understood that small, or retail, investors who sought to buy up to €30,000 worth of shares will receive the full amount they applied for, while orders above that level will be scaled back by investment bankers managing the deal.

While the Government is initially selling a 25 per cent stake in AIB, the investment banks and stockbroking firms leading the deal have an option to buy up to a further 3.8 per cent stake from the State in the coming weeks and place the these shares on the market, subject to investor demand.

Minister for Finance Pascal Donohoe told reporters on Thursday that he was “very happy” with the IPO process for AIB, which required a €20.8 billion bailout during the financial crisis and was seized by the State just before Christmas in 2010.

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The Government set an expected price range of between €3.90 and €4.90 for the AIB share sale last week and subsequently narrowed this spread two times. The final price, at €4.40, is at the mid-point of the range.

About 60 per cent of large IPOs over the past two years, where companies were raising at least €1 billion, were priced in the middle to bottom half of the initial price range.

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