UPDATE 1-Private equity ups bid for Ireland's EBS -source

Tue Jan 18, 2011 4:01pm EST
* Final bids were submitted on Monday
* EBS needs to raise 438 million euros by end of Feb
* EBS looking at liability management exercises -source (Adds
background, no comment from EBS and Irish Life)
DUBLIN, Jan 18 (Reuters) - The private equity consortium
bidding for EBS [EBSBS.UL] has upped the amount of cash it is
willing to invest into the Irish building society to more than
600 million euros ($803.2 million), a source familiar with the
process said on Tuesday.

Dublin-based Cardinal Asset Management was initially
looking at injecting between 450 million and 600 million euros
into EBS but raised that amount to take into account the
additional capital the building society needs under an EU/IMF
bailout package.
"They are offering a bit more upfront," said the source,
who declined to be identified.

Cardinal is receiving backing from the Carlyle Group
[CYL.UL] and U.S. investor Wilbur Ross. The other bidder for
EBS is bancassurer Irish Life & Permanent. (IPM.I)
Final bids for EBS were submitted on Monday. EBS and Irish
Life & Permanent declined to comment on the process. No one
from Cardinal was immediately available to comment.

The building society needs to raise an additional 438
million euros by the end of February in order to raise its core
tier one ratio, a key measure of financial strength, to 13.5
percent.

Under the terms of the 85 billion euros EU/IMF package,
Ireland has vowed to overcapitalise and shrink its banking
sector, which was brought to the brink of collapse through
reckless property lending.

Dublin has already injected 875 million euros into EBS and
is conducting another capital and liquidity review of lenders,
including EBS, this quarter. Bids for the building society are
conditional on that review.

Under the Irish Life & Permanent bid, the government would
have to inject the additional capital but Irish Life has
offered the state a minority stake in a new merged group
consisting of its permanent tsb banking arm and EBS, the source
said.

Irish Life has also offered warrants for the state to take
a stake in the insurer, the source said. Shares in the group
finished up nearly 4 percent at 85 euro cents on Tuesday.
Under the Cardinal bid, the government would not have to
pump any further cash into EBS unless future losses wiped out a
large chunk of Cardinal's investment. Cardinal will offer the
government warrants to take a 10 percent stake in EBS, the
source said.

The source also said that EBS was looking at the
possibility of raising capital through a liability management
exercise involving subordinated debt and hybrid debt during
this quarter.

Irish banks are swapping debt or buying it back at
discounted levels in a bid to reduce their reliance on state
capital.

Allied Irish Banks (ALBK.I) offered to buy back 3.9 billion
euros of subordinated debt at a 70 percent discount last week.
[ID:nLDE70C1J8] $1 = 0.747 eur (Reporting by Carmel Crimmins, editing
by Matthew Lewis)
Source: Reuters.Com

READ MORE - UPDATE 1-Private equity ups bid for Ireland's EBS -source

Q+A-Australia's private-equity tax ruling to test government

MELBOURNE Dec 1 (Reuters) - Australia has ruled that gains from asset sales by private equity firms would be taxed as income, dealing a blow to the nation's $20 billion industry.
The following is an explanation of the tax ruling and its implications.

WHAT DID THE AUSTRALIAN TAX OFFICE SAY?
The tax office ruled that proceeds from a sale of shares in a company bought in a leveraged buyout should be treated as income for the vendor. It specified this would apply also when the vendor is a private equity entity outside Australia which has sold a business in Australia. It also upheld a draft ruling against a holding company structure that used three different countries which it said was set up primarily to avoid tax.

The rulings were made to clarify the tax office's position after it hit U.S. private equity firm TPG [TPG.UL] with a $628 million tax bill in November 2009 on the $1.4 billion profit it made on the sale of department store chain Myer (MYR.AX). The tax office argued TPG's normal business is buying and restructuring companies, then selling them, so any profit made on the sale should be treated as ordinary income and be taxed as such, rather than as a capital gain. TPG argued that any profit on a sale is a capital gain and it should be entitled as a foreign resident to Australia's capital gains tax exemption for foreign investors.

WHAT HAPPENS NEXT?
Private equity groups and tax experts have been lobbying the government to clarify in law that profits on private equity sales should be treated as capital gains, on which foreign investors do not pay tax in Australia except in cases involving real estate. The government has said it would review the issue after the tax office issued its final ruling.

"Now the focus clearly shifts to the government," said Yasser El-Ansary, tax counsel at the Institute of Chartered Accountants. "They need to act quickly and decisively to restore confidence for foreign investment in Australia."

In March, then Assistant Treasurer Nick Sherry said the government would consider its policy stance after a final ruling from the tax office. But Sherry was replaced in August and his successor, Bill Shorten, has yet to decide whether to address the issue. "It's likely the government will take a number of months before coming to a position on this issue," El-Ansary said.
The issue could also be thrashed out in Australia's courts, if the tax office presses a case against TPG on the Myer sale.

WHAT WILL THE RULINGS MEAN FOR THE PRIVATE EQUITY INDUSTRY?
Private equity interest in Australia could stall. The Australian Private Equity and Venture Capital Association (AVCAL) has warned that the uncertainty over tax has already stalled plans by private equity investors and risks holding back foreign investment in Australia. Planned sales or IPOs have been put on ice until the issue is resolved, industry sources say.

Among the private equity sales in the pipeline are $7 billion worth of media businesses owned by CVC Asia Pacific [CVC.UL] and Kohlberg Kravis Roberts (KKR.N), Pacific Equity Partners' cinema chain Hoyts and bookstore chain REDGroup Retail; and Archer Capital's Ascendia Retail sporting-goods unit.

The pension funds and endowment funds that invest in private equity will also be affected if returns take a hit due to higher tax bills. According to figures from AVCAL, among the 10 largest Australian private equity firms with A$16 billion ($14.7 billion) in funds under management, a little more than half of the funds are from foreign investors.

WHAT ARE THE BROADER IMPLICATIONS OF THE RULING? Australia's government has been trying to position the country as a financial hub in the region, to attract investment flows and financial deals from Hong Kong and Singapore. But industry players and tax experts believe the country's standing as a destination for foreign investment will be put at risk if the government does not legislate to overturn the effect of the tax rulings. "The instability that arose earlier this year surrounding the government's proposed mining tax arrangements certainly dented Australia's reputation abroad. And today's announcements by the tax office will further erode confidence in Australian investment," El-Ansary said. (Editing by Mark Bendeich).reuter.com

READ MORE - Q+A-Australia's private-equity tax ruling to test government