THE European Commission has rejected a request by Dutch bank ING to repay a $1.5bn (£960m) debt instrument because the financial group has not yet repaid its state aid.
ING had wanted to call the instrument on 31 December as the hybrid will not qualify as Tier I capital under Basel III solvency rules.
"ING cannot repay its private hybrid capital holders until it has repaid the capital it received from the Dutch State in full. This is to ensure a fair distribution of the rescue burden in the first place," said Joaquin Almunia, Commission vice-president in charge of competition policy.
ING received a €10bn capital injection from the Dutch State in October 2008, of which €5bn was repaid a year later.
It also received €12bn in liquidity guarantees.
The Dutch government, at the beginning of 2009, also provided ING with a back-up facility covering 80 per cent of a portfolio of $39bn in illiquid assets.
"It remains our ambition to repay the state before the end of next year," ING spokesman Frans Middendorff said.
"We are not surprised but deplore the (Commission's) decision," he added.
It will now have to pay an interest rate of 3.9 per cent on the 8.439 percent non-cumulative guaranteed trust preferred securities paper, made up of three-month LIBOR plus 360 basis points.
ING will be able to call the hybrid loan after repaying the state or after 18 November 2010.
City A.M. Reporter