Prudential chairman Harvey McGrath Tuesday defended a planned takeover of Asian insurer AIA as the British company’s shares started trading in Hong Kong and Singapore to help fund the mega-deal.
Prudential, which is keeping its primary listing in London, is hoping to woo Asian investors ahead of its planned 21-billion-US-dollar rights issue to buy the Asian arm of troubled US insurer American International Group (AIG).
Prudential agreed to buy AIA for 35.5 billion US dollars in the insurance sector’s biggest-ever takeover, but the monster buyout has been criticised by some institutional investors who are warning they will try to block it.
“Some shareholders may vote against it, but I think the vast majority are comfortable with the transaction,” McGrath told reporters in Hong Kong. “The listing simply reinforces how important Asia is to the Prudential … I’m confident the combination of the businesses will be a great success.”
However, AIA’s chief executive has warned he will quit if Prudential succeeds in buying the firm, the Financial Times reported Tuesday. Mark Wilson has told friends and industry executives of his plans, saying the proposed takeover is a “disaster waiting to happen”, according to the paper.
McGrath declined comment on the report or to speculate on what portion of the rights issue would be snapped up by Asia-based investors. The British group delayed by almost twoweeks details of the record rights issue as regulators voiced concerns about the enlarged company’s capital strength.
But according to McGrath, Britain’s Financial Services Authority is “entirely comfortable with the transaction because they approved the prospectus”. The deal would transform Prudential into the world’s top non-Chinese insurer by market capitalisation, ahead of major competitors Allianz and AXA.
The Hong Kong and Singapore listings are being done by way of introduction, which means adding trading venues without issuing new shares. The Prudential shares closed down 4.2 percent at 57.20 Hong Kong dollars (7.33 US dollars) from their opening of 59.70 Hong Kong dollars.
In Singapore it closed down four percent at 7.41 US dollars. The takeover would give Prudential about 30 million customers in Asia and see the Asian operation become the group’s biggest division — contributing some 60 percent of new business profit. Further down the road, Prudential plans to offer almost 14 billion new shares, each priced at 104 pence. According to analytical group Dealogic, the rights issue is the biggest ever launched to fund a takeover.
Francis Lun, general manager at Fulbright Securities in Hong Kong, said Asian investors would likely embrace Prudential’s listing. “It will be well received because AIA is a well-known company in Hong Kong,” Lun told AFP. Patricia Cheng, an insurance analyst at Hong Kong brokerage CLSA, said the Hong Kong and Singapore listings were aimed at funding the AIA takeover rather than creating a new shareholder base. Cheng said she shared investor concerns about the takeover’s hefty price tag and Prudential’s “unrealistic” expansion plans in Asia. “Their concerns are all valid,” she told AFP.
“(Prudential) is trying to do a deal that is larger than its own market capitalisation. That creates a large financing burden.” Prudential says it expects to complete the takeover in the third quarter of 2010, and reports suggest it may have to sell its British operations to fund the rest of the deal.
The AIA deal and the rights issue need 75-percent backing at a meeting of Prudential shareholders on June 7. “I’m confident we’ll get shareholder approval on the seventh of June,” McGrath told a conference call Tuesday.
Hong Kong, May 25, 2010 (AFP)