ALLIED IRISH Banks has made a gain of €1.4 billion from a voluntary offer to buy back debt for 30 cent in the euro from subordinated bondholders. This will go towards the €6.1 billion in capital that it must raise before the end of next month.

The bank is purchasing about €2 billion of the bonds, paying a 70 per cent discount in an offer that was taken up by about 52 per cent of subordinated bondholders – a lower rate than expected.

The offer was open to subordinated investors in 11 outstanding bond securities holding about €3.9 billion of debt in euro, sterling and US dollars due by AIB.

The bank, which is 92.8 per cent owned by the State following the second Government bailout of the bank, still has €4.7 billion to raise before the end of February to bring its capital levels to international standards under the EU- IMF overcapitalisation plan.

There was a lower take-up in the offer among investors in subordinated bonds issued by the bank in a previous debt exchange undertaken by the bank last year.

These bonds paid a higher coupon of between 10.75 per cent and 12.5 per cent, indicating that investors may be betting against the Government using the new banking legislation to force losses on AIB subordinated debtholders, at least not before the next coupon payments in March and June.

Many of these bondholders may have already taken a haircut on their investment in the bank’s debt in last year’s bond exchange.

Analysts recommended investors accept the offer or risk getting “the stick” after the passage of the Credit Institutions (Stabilisation) Act, which can force losses on subordinated bondholders.

The low take-up shows that some investors are willing to risk a more draconian exchange before agreeing to sell out at discount.

“It is a high-risk strategy but some investors are seeing more upside than downside to the recent tender,” said Michael Cummins, director of fixed-income firm Glas Securities. “It is a brave move . . . but it appears that investors are taking the view that a coercive approach is not the desirable outcome for AIB at this juncture”

Ratings agency Fitch said the bank’s offer was not coercive but there was a higher likelihood of a coercive exchange by other legislation means if it was not accepted.

Fully nationalised Anglo Irish Bank, which is being wound down, offered 20 cent in the euro last year to subordinated bondholders and just one cent for every €1,000 of debt they held if they did not accept the offer in an exchange seen as tantamount to a default.

AIB’s offer earlier this month followed a statement from the EU last month in which it said it wanted the bank’s shareholders and subordinated bondholders to make “a significant contribution” to the bank’s restructuring costs.