Tuesday, May 28, 2024

State to get €1bn from AIB next Friday after off-market share buyback

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It brings to almost €1.3bn what it expects to receive from AIB in coming weeks when dividends of €273m due to be paid to the State by the bank in May are taken into account.

Earlier this year, the bank and Finance Minister Michael McGrath agreed to an off-market deal that will see AIB buy €1bn of shares from the State as the government looks to continue reducing its stake in the bank.

The deal is expected to be approved by shareholders after the bank’s annual general meeting next Thursday. Once the deal has been approved, it has to be consummated by a minute to midnight on Friday.

The State currently owns 39pc of AIB, whose chief executive is Colin Hunt.

The bank was nationalised in 2011 at the height of the financial crisis, with the State at that stage owning just under 100pc of the lender following a €21bn bailout. But the government has cut its stake rapidly over the past three years. In December 2021, it owned just over 71pc.

The upcoming sale of €1bn worth of shares will see the State’s stake fall to about 31pc. The State is being advised by investment bank Rothschild and law firm William Fry on the deal.

“By reducing the Minister for Finance’s shareholding in AIB, the proposed transaction will help contribute to AIB’s return to full private ownership over time through the use of AIB’s excess capital,” the chair of AIB, Jim Pettigrew, told investors in a circular in advance of next week’s shareholder meetings.

In March, AIB said that it was planning to distribute about €1.7bn to shareholders. That includes both dividends and a buyback. Mr McGrath agreed that the State would, in principle, take part in the buyback. But given the size of the transaction, it requires approval from shareholders. That will be by way of an extraordinary general meeting after AIB’s annual general meeting on Thursday.

“The price the State will receive for these shares is based on a formula that has been disclosed and will be determined in coming days,” Mr McGrath told Sinn Féin’s Pearse Doherty in response to a parliamentary question this week.

The operating profit at state-owned forestry firm Coillte almost halved last year amid a backdrop of weak ­consumer demand.

Releasing results on Thursday, the company said it made a €61m operating profit in 2023, compared with €119m the previous year. Revenue at the group declined almost 16pc to €414m.

The semi-state company said it had delivered a “solid financial performance” despite “volatile market conditions, with high inflationary pressures, rising interest rates and lower end-market demand resulting in lower prices”.

Coillte chief executive Imelda Hurley told the Irish Independent she expected 2024 to be another challenging year for the group, with the company entering the period with a lower pricing point for its products compared with a year ago.

“During the year we experienced ­volatile market conditions which impacted end-market demand for our products and resulted in significantly lower prices,” she said.

“We’re now pleased to see a level of stabilisation in pricing and early signs of consumer confidence.

“It will be a challenging year. We’re going to focus on controlling the ­controllables.”

Ms Hurley said sawlog and panel products were globally traded commodities, which were closely linked to the construction sector, with the result that Irish pricing reflected the impact of global demand and supply dynamics.

She said pricing had started to decline in 2022 and continued last year. Over the course of 2023, Ms Hurley said prices for those products fell about 25pc.

“We do our best to optimise our pricing, but what we have to focus on is ensuring we’re managing our production, which we can control, and managing our cost base,” Ms Hurley said.

Of Coillte’s revenue last year, €293.1m was generated by its Medite Smartply unit, which makes timber construction panels in Clonmel and Waterford.

Almost €190m of the unit’s sales last year were made in the UK.

Coillte aims to produce 25 million cubed metres of certified Irish timber to support the construction of 300,000 new homes in Ireland by 2030. It wants to see the number of timber-framed homes built in Ireland rise from 20pc to 80pc of the total by 2050.

“In the near-term, notwithstanding some macroeconomic and geopolitical uncertainties, Coillte expects to see demand across its core end-markets stabilise, underpinned by an improved macro-economic outlook coupled with a rebalancing of relevant demand and supply dynamics,” the company said.

It said in its annual report that inflationary cost pressures “continue to place a strain” on the company, “particularly for those input costs that are closely correlated to movements in gas and oil prices”.

During the year, Coillte refinanced its existing debt facilities resulting in €150m of available debt facilities, in addition to net cash of €65m.

It also paid a €17.7m dividend to the Exchequer in 2023. That included a final dividend of €7.7m in respect of 2022 and an interim dividend of €10m in respect of 2023.

The company also advanced €18m in shareholder loans to its joint venture with the ESB, FuturEnergy Ireland, to facilitate its wind energy development portfolio.

During 2023, FuturEnergy’s first developed wind farm – a 30MW project at Lenalea, Co Donegal – came on stream. That project is a joint venture with SSE. FuturEnergy has a goal of 1GW of renewable energy sites operational by 2030.

“It is expected that the buyback will be completed shortly after AIB’s annual general meeting on 2 May.”

Up to January this year, the State has recovered €6.24bn of its investment in AIB.

That was by way of the stock market flotation of the bank in 2017, four share sales between 2022 and 2023, and two share buybacks undertaken by the bank.

The State raised €3.4bn in gross proceeds by selling a 25pc stake in AIB in 2017.

AIB’s shares are currently trading at about €4.90, compared to €4.40 when the government sold its initial 25pc stake in 2017. In the past year, they’ve advanced by a third, giving the bank a market capitalisation of almost €13bn.

Last year, AIB made a record €2.39bn pre-tax profit as it benefited from higher interest rates.

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