Written answers

Wednesday, 18 November 2015

Photo of Tommy BroughanTommy Broughan (Dublin North East, Independent)
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12. To ask the Minister for Finance the impact on Ireland's national debt and the debt to gross domestic product ratio of proposed payments from Allied Irish Banks in 2015; the likely impact of these and other money recouped from the bank in 2016 to 2018; and if he will make a statement on the matter. [40176/15]

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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Once finalised the proposed Capital Reorganisation of AIB will allow for the redemption of €1.36 billion of the State's Preference Shares for €1.7 billion in cash. The State will convert its remaining Preference Shares (€2.14 billion nominal) into €2.67 billion of ordinary shares at a price to be agreed with AIB. The cumulative effect of these measures, along with the expected issuance by the bank of Tier 2 and AT1 instruments, will provide AIB with a strong, market-facing capital structure and will facilitate the first significant return of capital to the State by AIB.

In relation to other moneys expected to be recouped in the coming years, the conversion of a portion of the Preference Shares fast tracks the bank's ability to remunerate and redeem State aid through the bank's own cashflow and also opens up the possibility of the State monetising some of its equity investment through a sale process in the future. While the conversion and redemption will bring to an end the annual payment of dividends on the Preference Shares it is important to note that the State will retain 99.8% ownership of AIB into the future. Following this capital reorganisation I am confident that the bank will be capable of resuming ordinary dividends in the future helping to replace this lost income. The future payment of these dividends is a matter for the Board of AIB and its regulator and given the fiduciary and regulatory obligations involved, I cannot be specific about the exact timing and quantum that might be involved.

As I stated in my Budget 2016 speech, the proceeds from the sale and redemption of the State's investments in the banks will be used to reduce the general government debt. However, any proceeds received beyond the lifetime of this Government, will be a matter for the next Government.

The receipt of these monies will benefit the Exchequer, reduce the Exchequer Borrowing Requirement and result in debt reduction. In this regard I would stress the importance of continuing to reduce Ireland's debt ratio over the medium term to ensure market confidence in Ireland and rebuild our fiscal capacity.

The State also holds €1.6 billion of contingent convertible capital notes (CoCos) in AIB which were issued on 26 July 2011 with a maturity date of 28 July 2016. It is expected that the full value of the notes will be returned to the State by the bank on the maturity date. This has been included in the baseline budgetary figures for Budget 2016.

It should be noted that National Debt is the net debt incurred by the Exchequer after taking account of cash and other financial assets, while general government debt (GGD) is a measure of the total gross consolidated debt of the State compiled by the Central Statistics Office (CSO). This is the measure used for comparative purposes across the European Union.  

The redemption of €1.36 billion of the State's Preference Shares for €1.7 billion in cash, is expected to be received in the coming months. Assuming all other things being equal, the general government debt will reduce by the €1.7 billion in the year in which the cash is received. Ceteris paribus, this would reduce the debt to GDP ratio by c. 0.75% of GDP.

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