State under pressure to convert AIB warrants - Tribune

I read this yesterday and I must admit that I don’t understand the logic.

The government invested 3.5bn in AIB in the form of subordinate bonds with an 8% coupon. The coupon is just about due and, because it’s not quite a full year, the state should receive c. 250m. AFAIK the EU has told the bank it can’t pay cash, so it’s likely the state should receive ordinary shares equal to the cash amount owed. If my understanding is right, given AIB’s mkt cap is about 950mn, the state would end up owning about 25% of AIB.

With respect to converting the Subordinate bonds to ordinary shares, I’m confused. We have 3.5bn, AIB’s mkt cap is 950m. Unless the state admits its investment is sour, why convert a portion of the subbies?