Potential investors in AIB have voiced concerns about paying up front for the bank's ability to save €3 billion in taxes in the coming decades, as analysts at investment banks advising on the lender's flotation seek to assess demand for the share sale by the State.
Major institutional investors assessing whether to buy into AIB's proposed initial public offering (IPO) have also pressed analysts on the State's IPO two years ago of Permanent TSB, given the stock's subsequent decline in value.
They have also highlighted issues with the lack of an incentive plan for AIB’s management to tie executives’ interests to those of shareholders.
Following the State’s announcement last week that it plans to sell an initial 25 per cent stake in AIB, analysts with investment banks working on the sale have dispersed internationally to “educate” potential investors on the bank’s progress since it was seized by the Government in 2010.
AIB management, led by chief executive Bernard Byrne and chief financial officer Mark Bourke, will start to court investors after the publication next week of the official IPO prospectus, and the price range at which the stock is likely to be sold.
Briefed
Between 150 and 200 institutional investors will be briefed by three AIB teams in cities including London, New York, Boston, Toronto, Chicago, Paris, Frankfurt, the west coast of the United States, and Asia.
The transaction, forecast to value AIB at between €11 billion and €14 billion, is expected to conclude by the end of the month.
Sources said potential investors are generally upbeat on the AIB pitch, including the Irish economic story even as it deals with the fallout from Brexit, the bank’s turnaround and return to profit in 2014, its widening net interest margins and rising domestic property prices.
However, potential long-term oriented investors, possibly seeking to influence the pricing of the IPO, have signalled a number of issues.
Sources said that some would-be investors have noted that the bank’s ability to minimise its tax bill for up to three decades by using €3 billion of deferred tax assets (DTAs) – resulting from the bank’s €25.5 billion of losses between 2009 and 2013 – may be subject to political and regulatory risks.
Unused tax losses
The UK, for example, has moved twice in the past two years to curb the ability of companies to shelter profits by utilising unused tax losses.
As a result, potential long-term oriented AIB investors have indicated that they would be unwilling to give the full benefit of the DTAs when the bank’s IPO is being priced.
They have also highlighted concerns about how PTSB’s share price fell by as much as two-thirds within a little over a year of its IPO price amid actual and feared political interference in standard variable mortgage rates.
AIB highlighted in bond documents earlier this year that a Fianna Fáil Bill seeking to give the Central Bank powers to cap mortgage rates – which remains stranded in the Oireachtas process since it passed an initial Dáil vote 13 months ago – may ultimately hit its income if passed into law.
