Lucinda Creighton (Dublin South East, Fine Gael)
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Question 67: To ask the Minister for Finance the loss he expects the National Pension Reserve Fund to sustain as a result of the State's underwriting of the €5.4 billion Allied Irish Bank plans to raise through the sale of new shares; and if he will make a statement on the matter. [41619/10]

Joan Burton (Dublin West, Labour)
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Question 74: To ask the Minister for Finance if his attention has been drawn to the fact that it is customary when a company engages in a rights issue that the price of the shares issued thereunder be set at a significant discount to the prevailing market price to attract investors; the reason he intends to press ahead with the €5.4 billion AIB rights issue at a price of 50 cent, when the market price was varied between 20 to 40% below this level; the level of private sector take up of these rights he would expect if the price remains significantly below the price of the rights issue; his views on whether, in the event that the National Pension Reserve Fund were to take up the entire rights issue, this would entail both a significant and immediate loss to the NPRF and a corresponding gain to existing shareholders whose shares would not then be diluted to the extent that would have been the case had the price of the rights issue been set at or below market price; and if he will make a statement on the matter. [41645/10]

Pat Breen (Clare, Fine Gael)
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Question 77: To ask the Minister for Finance the reason the Government intends purchasing Allied Irish Bank shares at 50 cents when they are available on the market at less than 35 cents; and if he will make a statement on the matter. [41616/10]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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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.