Prudential launches massive AIA rights call

17th May 2010 07:07

Life insurer Prudential has finally launched its delayed rights issue to finance the $35.5bn acquisition of AIG's Asianbusinesses (AIA), with the new shares priced at an 80% discount to the market price on Friday.Prudential had to delay the share issue for nearly two weeks after the Financial Services Authority expressed concerns over the level of regulatory capital the Pru would hold after the deal. The terms of the rights, which will raise £14.5bn ($21bn), are 11 new shares for every two at a price of 104p.Chairman Harvey McGrath, who has been heavily criticised for the way the deal and rights issue have been transacted, said, "This combination represents a unique opportunity for Prudential and its shareholders. We believe that this transaction offers compelling strategic and financial benefits and will deliver excellent returns for shareholders."There has been some tweaking of the original deal to get approval from the FSA. The Pru now says more expensive hybrid loans will account for $5.4bn of the consideration, with AIG subscribing for up to $1.875bn of that capital. After the deal completes, the enlarged firm's IGD regulatory capital base or solvency base will be £5.2bn with an additional £1bn in place as a buffer in 'certain stress scenarios'.The Pru has also revised its estimates of the benefits of the deal, now saying it expects revenue synergies of $800m and cost savings of $370m.It also predicted IFRS pre-tax operating profit for the Asia combined business of at least £3.26bn in 2013 and to more than double combined Asian embedded value pre-tax new business profit of at least £2.8bn in 2013.The Pru also set an ambitious target for remittance of at least $1bn per annum from the AIA Group in 2011 and onwards.These revised numbers may help the life group win over hostile institutions over the merits of the deal, which needs 75% of shareholders to back it. The group also tried to sugar the pill today with a bullish trading update. The current businesses enjoyed their best quarter ever in the three months to March with new business sales up 27% to £807m and operating profits up 26% to £427m, the Pru said.The prospectus issued today also gave more details of asset disposal plans, including in India, China and, possibly, South Korea and Vietnam. There was no comment on the future of the UK arm, which is also widely tipped as a disposal candidate.Chief executive Tidjane Thiam said that releasing the prospectus meant the group could also answer a lot of questions raised by disgruntled investors in recent weeks."We were a little bit like a fighter fighting with one arm behind his back. We were handicapped, we weren't able to answer a lot of questions," Thiam said, adding investors had given Prudential "the benefit of the doubt, "he said."Overall we feel confident they will support this. We always knew this would be a long, complex and challenging process what we are attempting has never been attempted before," he added.Shareholders vote on the deal on 7 June. The rights issue is being underwritten, with the underwriters getting 2%, or just short of £300m, in fees.