Minister for Finance Michael Noonan has given the green light for the sale of 25% of the Government's shares in AIB.
It comes seven years after the bank was nationalised at the height of the financial crisis, at a cost to the state of over €20 billion. The offer is expected to take place in the coming weeks with a share price range expected to be announced in mid-June.
The Department of Finance says that it will sell the shares on the Irish and London stock exchanges next month.
The move could raise up to €3 billion for the State, making it one of the biggest sales on the London Stock Exchange in the past two decades.
That would value the bank at about €12bn-€13bn, well below the almost €21bn invested by the State at the height of the financial crisis.
However the Department of Finance says AIB has already returned €6.6bn in the form of capital, fees, dividends and coupons.
It hopes the value of the State’s remaining shareholding will rise over time, as the bank makes bigger profits.
Minister for Finance gives green light for the sale of Government's shares in AIB https://t.co/KcQhS9xUmS pic.twitter.com/tkIDbpBvmt— RTÉ News (@rtenews) May 30, 2017
The sale's price range and prospectus are expected by mid-June, with the process expected to conclude by 28 June, according to Mr Noonan.
Speaking to RTÉ News, the minister said it could take another eight to ten years to sell all of the State shareholding in the bank.
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The Government says the timing is good; the leading index of European Shares, the Stoxx 600, has seen its bank shares component rise by 19% over the past year, as investors grow more confident about the sector. AIB has made a pre-tax profit for each of the past three years.
The Minister for Finance on behalf of the State owns approximately 99.9% of AIB's Ordinary Shares having invested about.€20.8 billion in AIB since 2009.
In a statement the Department of Finance said: "The Government's policy has been to return its banking investments, including AIB, to private ownership over time in a manner which recoups the cost of the support for the benefit of the Irish public.
Given AIB's strong financial performance and current market conditions, the Minister for Finance said he had decided that the timing is now right for the Irish State to commence this process.
In its statement to the stock market, the Government and AIB emphasised the strong growth rate of the Irish economy, where AIB does the bulk of its business.
It says the bank's Core Tier one Capital - a key measure of financial strength - is 16%, compared with 11.8% in 2014.
It says the increase in capital has been "internally generated" from profits made over the past three years.
It says that AIB's loan to deposit ratio is 96%, giving the bank scope to increase lending.
The bank declared a pre-tax profit of €1,682m in 2016. Its Net Interest Margin - a key measure of profitability - increased from 1.69% in 2014 to 2.25% in 2016, with a "sustainable NIM" at 2.46%5 in Q1 2017.
Govt to sell 25% stake in AIB - Why now and what happens next? @seanwhelanRTE explains pic.twitter.com/qwjVnmiNZZ— RTÉ News (@rtenews) May 30, 2017
According to the Financial Times, Department of Finance officials and AIB management have spoken to around 20 potential investors in recent weeks.
The large size of the flotation has brought many big names from the world of finance into the process.
Merrill Lynch International, J&E Davy and Deutsche Bank are acting as Joint Global Co-ordinators and Joint Bookrunners for the Initial Public Offer, as the share sale is formally known.
Morgan Stanley is acting as UK Sponsor, Financial Adviser, ESM Adviser, and Corporate Broker to AIB and Goodbody Stockbrokers is acting as Irish Sponsor, Financial Adviser and Corporate Broker to AIB and Joint Bookrunner.
Citigroup Global Markets Limited, Goldman Sachs International, JP Morgan Securities and UBS are acting as Joint Bookrunners and Investec Bank plc (Irish Branch) is acting as Co-Lead Manager.
N M Rothschild & Sons Limited is acting as Financial Adviser to the Minister for Finance.
Keen to avoid a repeat of the losses suffered by small shareholders who bought into the Eircom flotation, the Government has decided to repeat the formula used in the 2006 privatisation of Aer Lingus, by imposing a minimum stake of €10,000 on retail investors.
In the Government's view, requiring a minimum stake of that scale should attract only those investors who fully understand the risks involved in investing in shares.