Irish Government has increased its stake in Allied Irish Banks (AIB) to 18.6%, as the bank failed to pay cash dividend in time.

Discussions on the AIB’s restructuring plan with the European Commission (EC) are ongoing and are being conducted in conjunction with the Department of Finance.

At the request of the EC, AIB has agreed not to make discretionary coupon or dividend payments on certain of its securities. As a result, the annual dividend on the National Pension Reserve Fund Commission’s (NPRFC) EUR3.5bn preference shares, amounting to EUR280m, due on May 13, 2010, will not be paid in cash.

Under AIB’s articles of association, it is required to issue ordinary shares to the NPRFC equal in value to the amount of the dividend that would otherwise have been payable. As a consequence of this, AIB will issue 198,089,847 ordinary shares to the NPRFC by way of bonus issue.

The number of shares is equal to the aggregate cash amount of the annual dividend of EUR280m on the NPRFC’s holding of preference shares, divided by the average price per share in the 30 trading days.

The issue of shares increases the ordinary shares of AIB in issue to 1,080,845,303, of which the 198,089,847 shares to be issued to the NPRFC represents 18.33%, bringing the NPRFC total ownership of AIB ordinary shares to 18.61%.

AIB needs to raise EUR7.4bn in new capital before the end of year 2010 or ask for further state aid, to make up for losses on transfers of bad loans to the National Asset Management Agency.

AIB is developing a cost reduction program that will reset the base to a lower level, reflecting a more streamlined structure more aligned with the bank’s reduced size following completion of the business disposals now underway.