Royal Bank of Scotland Group (RBS) is in talks with UK Financial Investments (UKFI) over £2bn ($3bn) debt sale terms which could possibly dilute the government’s stake in the bank.
The talks of UK Financial Investments, which manages the government’s 80% stake in the bank, and RBS are intended at avoiding a breach of the bailout terms of the bank.
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UKFI is currently discussing the terms of an additional Tier 1 (AT1) capital buffer with the bank, which the bank intends to seek from investors.
After passing Bank of England’s stress tests last month RBS said that the £2bn AT1 issuance would take place during this year, and would see the instrument convert to shares in RBS if its capital buffer dropped to 7%.
However, the capital-raising has become complex due to a clause in RBS’s taxpayer bail-out. The clause restricts taxpayers’ shareholding being diluted through the launch of such convertible securities.
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