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State’s holding in AIB increases by €1.7bn in value

The value of the State’s holding in AIB rose by €1.7 billion in 2014, according to the latest valuation carried out for the National Treasury Management Agency. This has emerged from the NTMA’s review for last year. The State’s holding in AIB and Bank of Ireland is managed by the Ireland Strategic Investment Fund, which has taken over the role of the National Pensions Reserve Fund.

The valuation was carried out by EY, the auditors to Anglo Irish Bank at the time of its collapse and nationalisation in 2008-09. This values the State’s ordinary and preference shares in AIB.

At the end of 2014, the AIB holding was valued at €11.7 billion while the State’s 14 per cent stake in Bank of Ireland, which has a main market listing on the Irish Stock Exchange, was worth €1.4 billion. The State also holds €1.6 billion worth of contingent capital notes in AIB, also known as CoCos.

The uplift in the valuation of AIB comes at an important juncture for the State and the bank. The groundwork is being laid to attract private investors into the bank and their is an increasing expectation that some form of IPO of AIB might take place this year.

The NTMA’s results also show that it ran down the State’s cash buffer by €7.4 billion in 2014. The agency held exchequer cash and other short-term investment balances of €11.1 billion at the end of last year compared with €18.5 billion a year earlier. Exchequer debt service costs in 2014 were €8.2 billion, up marginally on the previous year.

Last year saw the NTMA make a full return to the bond markets with regular auctions and the issue of two new long-term benchmark bonds. In total, it sourced €11.75 billion in bond market funding last year.

Along with the rundown of cash reserves, this was used to fund an exchequer deficit of €8.2 billion, to refinance €2.7 billion of maturing long-term debt and to repay €9 billion of borrowings from the IMF.

The weighted average interest rate on the €11.75 billion of funding was 2.84 per cent. The yield spread between Ireland and Germany on 10-year bonds narrowed to 75 basis points at year-end from 166 basis points in January 2014.

The NTMA has already been busy in the bond market this year, raising €4 billion this week for a seven-year bond at a record low yield of 0.867. It intends to repay another €9 billion of IMF loans in 2015.

The NTMA’s review said the State Claims Agency’s legal costs unit secured reductions of €10.5 million of the 133 tribunal-related expense claims resolved since it became operations in February 2013. Another 35 claims are being managed by the unit. NTMA’s newly appointed chief executive Conor O’Kelly said: “The NTMA plans to issue €12 billion to €15 billion of long-term bonds over the course of this year, which includes provision for further IMF repayments. The €4 billion sale of a new seven-year benchmark bond represents a strong start in this regard.”

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