As a part of its plan to recover £70 billion of government’s investment in troubled banks, UKFI intends to sell exchangeable bond in two of the biggest banks of the country.
Analysts at Exane BNP Paribas, a research and investigation firm, estimate that the Government is still £28.6 billion short on its bank investments, which amount to 70% of RBS and 43% of Lloyds.
Even though UKFI is mulling over several alternatives on how to recover taxpayer money, the exchangeable bond is considered to be the most effective one, since both RBS and Lloyds shares are still way below the price the government paid. Banking sources feel that even if the shares were returned, it would be still beneficial to the taxpayer as it would transfer the burden of financing of stakes to the private sector and reduce government debt for the time being.
John Crompton, former Merrill Lynch banker in charge of the taxpayer’s holdings in RBS and Lloyds Banking Group at UKFI, has spoken to advisers about selling an exchangeable bond in the two lenders, according to the Daily Telegraph.
Convertible instruments are a hit in Middle East, where investors purchased £5.3 billion of warrants and convertibles in Barclays in 2009. Similarly Abu Dhabi too was sold out for a £1.45 billion profit. However, the deal is unlikely to be concluded before the end of this year.
The final terms of the asset protection scheme (APS) for both the banks’ toxic debts, that will determine their commercial prospects, are yet to be agreed. Any investor would like to have full details on the APS before buying an exchangeable bond.
