I propose to take Question Nos. 67, 74 and 77 together.
The Financial Regulator determined on 30 September 2010 that AIB must raise a revised €10.4bn by the end of 2010 in order to meet its capital requirements. To date AIB has announced the sale of its Polish subsidiary BZWBK, which is expected to generate capital of €2.5bn and the sale of its holding in US bank M&T which has generated €0.9bn in capital. There will be further asset disposals but the remaining capital requirement of the bank will be met largely through a placing and open offer of shares to existing shareholders. The placing and open offer will be fully underwritten by the NPRFC at a fixed price of €0.50 per share.
The underwriting price of €0.50 per share represents a 9.4% discount to the closing price of AIB's stock on 29 September 2010, which was the day before my statement announcing the placing and open offer. The discount to be applied to the prevailing market price is in line with relevant precedent Government underwritten transactions in other jurisdictions. I am advised by the NTMA that it is the normal practice in underwritten transactions that the underwriting price is fixed at announcement. It is not unusual for the share price to fluctuate following the announcement of an underwriting transaction. The real value of the States investment is not as reflected in the current share price, which is continuing to fluctuate, but in the market value of the bank post once it has recovered.
The structuring of this transaction balances two very important objectives. The first is to ensure appropriate burden sharing through shareholder dilution. The second is to ensure a viable exit mechanism through which the State can recover its investment. It is preferable for the State's medium to long-term investment strategy in the bank that a full and viable listing is maintained. As a result the transaction has been structured to impose significant dilution on existing shareholders, while retaining sufficient public ownership to maintain the bank's stock exchange listing. I am informed by the NTMA that any further dilution of shareholders rights would have undermined the maintenance of a listing.
The size of the State's capital investment remains constant at €5.4bn regardless of the underwriting price used in the transaction. If the underwriting price had been set lower than €0.50 then a greater number of shares would have to be issued to meet the €5.4bn investment and the bank's stock exchange listing would be challenged. This listing provides a route for the NPRF through which the value of its investment in AIB may be realised over time as the economy and banking sector environment improves.
It is not possible to quantify the level of shares likely to be taken up by the private sector in the placing and open offer. However, it is highly likely that the State will acquire a significant majority shareholding in AIB upon completion of the transaction. The value of the State's ordinary share investment in AIB following completion of the transaction will be subject to variations in the underlying share price of AIB on a daily basis and cannot be quantified at this stage.