8. Directed Investments
The Agency holds Directed Investments subject to directions given by the Minister for Finance pursuant to section 43 of the NTMA Act 2014. The holding and management of the Directed Investments, the exercise by the Agency of voting and other rights attaching to the Directed Investments and the disposal by the Agency of the Directed Investments must be conducted in accordance with any directions given by the Minister for Finance.
8.1 Directed Investments valuation
| 2016 Units Millions |
2015 Units Millions |
Valuation (€) 2016 Per Unit |
Valuation (€) 2015 Per Unit |
2016 €m |
2015 €m |
|
|---|---|---|---|---|---|---|
| Bank of Ireland (BoI) | ||||||
| Ordinary Shares1 | 4,512 | 4,512 | 0.234 | 0.338 | 1,056 | 1,525 |
Allied Irish Banks (AIB) |
||||||
| Ordinary Shares2 | 2,711 | 2,711 | 4.277 | 4.5138 | 11,595 | 12,236 |
Total directed investments assets |
12,651 |
13,761 |
||||
Cash (Note 12) |
215 |
240 |
||||
| SBCI Loan (Note 14.3) | 25 | - | ||||
| Total directed investments | 12,891 | 14,001 |
8.2 Directed investment valuation movement
| Bank of Ireland | 2016 €m |
2015 €m |
|---|---|---|
| Opening valuation | 1,525 | 1,412 |
| Investment (loss) / gain during the year | (469) | 113 |
| Closing Valuation | 1,056 | 1,525 |
| Allied Irish Banks | 2016 €m |
2015 €m |
| Opening valuation | 12,236 | 11,711 |
| Preference share redemption | - | (1,700) |
| Investment (loss) / gain during the year | (641) | 2,225 |
| Closing Valuation | 11,595 | 12,236 |
i) Valuation of directed investment of AIB shares
In determining the Fund’s valuation of AIB, EY considered a number of valuation methodologies including a valuation based on comparable company yields, comparable company analysis and precedent transaction analysis.
For the purposes of valuing the AIB ordinary shares, a comparable company analysis was deemed the most appropriate methodology. This analysis used comparable, publicly available market multiples, such as tangible book value relative to return on equity, to allocate value to the ordinary shares. EY also had consideration to other multiples such as price to earnings and price to book.
While there was an increase in the net book value of AIB over the year, the value as at 31 December 2016 is lower due to a decrease in the peer group valuations.
It should be noted that there are a number of sensitivities which may impact the AIB valuation including:
- Potential IPO of AIB shares in 2017;
- Changes in sentiment and perceptions of investors regarding banks and the outlook for the banking industry and the broader domestic and European economy;
- Changes in AIB’s financial performance and outlook. AIB is heavily exposed to the domestic Irish economy. The United Kingdom’s decision to leave the European Union may impact the terms under which Ireland’s economy will operate and the extent to which inward investment will continue to flow.
All other things remaining constant, a 1% movement in the valuation of the comparable peer group would have impacted the AIB ordinary share valuation by approximately €104.3m as at 31 December 2016 (2015: €122.4m).
- The valuation of BoI ordinary shares is based on quoted bid prices.
- Given the Fund’s ordinary share holding in AIB (99.9%), the Agency engaged EY to provide an independent fair value of the investments.