Prudential scrambles for float as AIA deal hangs in balance
Prudential was racing last night to complete a Hong Kong listing for its shares amid renewed doubts that investors would approve its record $35.5 billion acquisition of AIA, the Asian division of American International Group (AIG).
Blair Stewart, an analyst at Bank of America Merrill Lynch, said yesterday it was by no means certain that Pru investors would approve the AIA takeover, the largest in insurance history. For the Pru to buy from the American insurer, 75 per cent of shareholders must back it.
The Pru said that it was accelerating its Hong Kong listing in an effort to ensure that Asian investors were eligible to buy into its record $21 billion (£14 billion) rights issue, a price for which is expected to be set in late April or early May. The proceeds will be used to part-pay for AIA.
Asian tycoons and other high-net-worth investors are expected to buy shares in the listing, which bankers working for the insurer said they hoped to complete towards the end of April. Foreign involvement would also boost the rights issue if, as critics fear, demand in Britain is weak.
British investors, who are being courted in earnest by the Pru this week, have raised concerns about the price being paid for AIA, as well as the lack of detail about the structure of the rights issue and the eight-week delay before a firm price is set.
Pru shares came under renewed pressure yesterday after it emerged that short-sellers had dramatically increased their bets that the company’s share price would fall. The stock closed 0.4 per cent lower at 518½p and has fallen about 14 per cent since the takeover was announced last Monday.
According to Data Explorers, the market-analysis company, almost 2 per cent of the Pru’s shares — worth about £286 million — were out on loan as of Friday. This compares with an average during the past three months of 1.5 per cent. Short-sellers sell borrowed shares in the hope of profiting from buying them back more cheaply once the price has fallen.
One leading investor, who asked not to be named, said that his fund had sold almost all its stake in the Pru during the past fortnight because of rising doubts over the way in which the insurer was being run.
The investor said that the rights issue had not been properly discussed in advance with the Pru’s largest shareholders, adding: “Prudential management seems to be taking on risk at levels that long-term investors in the company would never have bought into.”
The insurance company’s management, led by Tidjane Thiam, the chief executive, met half a dozen of its biggest UK investors in London yesterday in an attempt to convince them of the merits of the deal.
Sources close to the Pru said that the meetings with shareholders had gone well, with many supportive of the insurance group’s Asian expansion plans. Credit Suisse, HSBC and JP Morgan Cazenove are the lead underwriters of the rights issue, but were joined last week by a further 30 banks which will also assume some of the risks of the cash call in exchange for a fee. Asian sovereign wealth funds are also expected to buy Pru shares.
Miles Costello, Leo Lewis and Robert Lindsay, The Times 09-03-2010