Ireland to unveil "bad bank" law

Ireland's "bad bank" will be able to raise funds via bonds for viable, partially completed property projects it will acquire under plans to cleanse the banking sector of risky assets, a source said on Wednesday.

Dublin is publishing eagerly-awaited draft legislation on Thursday which will outline the powers the National Asset Management Agency (NAMA) will have to work through property loans and associated assets with a nominal value of 80 billion euros.

Around a quarter of the assets being taken over are in Britain, mostly in London and Northern Ireland.

A source familiar with the legislation said NAMA, which is designed to get credit flowing in Ireland again, would have the ability to fund potentially profitable developments that have been hampered by the credit squeeze. The source, who declined to be named, said funding could come via bonds or deals with private equity.

The draft legislation, to be published on Thursday at 5 p.m. and debated by parliament in September, will not spell out what sort of discount NAMA will demand on the 80 billion euros (68.4 billion pounds) of assets because this will be decided on a case-by-case basis.

The government has indicated that the value of the assets will be based on a long-term valuation model.

Some rural sites bought for development but now left fallow, will, however, probably be priced at current rates for agricultural land because of the unlikelihood of the development project being resurrected, the source said.

The size of the discount demanded will determine whether Ireland's top two banks, Bank of Ireland and Allied Irish Banks will need further state capital injections on top of an existing 25 percent stake in each lender.