Prudential's HK debut may see little splash
British insurer Prudential will join the Hong Kong stock exchange tomorrow in a bid to persuade Asian investors to stump up for part of its record US$21 billion rights issue.
But while it needs local investors' cash to fund its US$35.5 billion takeover of Asian life insurer AIA, analysts predicted Hong Kong money managers would give the British insurer's shares a wide berth amid growing doubts over whether the buyout could happen.
The chances of Prudential getting the 75 per cent approval it needs for the fund-raising, which goes to a shareholder vote on June 7, are already on a knife edge, with a growing chorus of investors speaking out against the takeover.
Meanwhile AIG, AIA's US-government owned parent, is dusting off old plans to float the Asian life business on the exchange amid fears the sale to Prudential could fall apart, British media reported at the weekend.
Patricia Cheng, an insurance analyst at independent Asian stockbroker CLSA, pointed out that Prudential would not be included in the MSCI Asia index. This means most local fund managers won't look at buying its Hong Kong shares.
The insurer is not raising new money in Hong Kong. It is listing its shares here by introduction, meaning Hong Kong investors rely on the company's investment banks being able to source shares from London.
Local shareholders who join the share register can then participate in the US$21 billion cash call, but this could be a gamble.
An increasing number of the British insurer's investors want to block the deal because they view AIA as far too expensive for Prudential. AIA's price tag is much larger than Prudential's own market capitalisation, which stood at GBP13.1 billion (HK$147.91 billion) last Friday.
'The AIA acquisition looks absolutely dreadful from a UK investor's point of view. I will be voting strongly against it,' said Paul Mumford, of London-based fund manager Cavendish Asset Management, which has a GBP2.5 million holding in the British insurer.
The Capital Group, a US fund manager that owns 13 per cent of Prudential, is reportedly against the takeover.
Neptune Investment Management, another shareholder, has launched an investor action group to oppose the AIA acquisition. Standard Life, the British pension fund heavyweight, has also announced it believes AIA is too expensive for Prudential to swallow.
Prudential wants Asian investors to buy its Hong Kong-listed shares then participate in the deeply discounted rights issue, if that goes ahead. In the planned rights issue, Prudential will offer existing shareholders 11 shares at 104 pence a share, a huge discount on its 517 pence closing price on Friday.
If the rights issue is approved, Prudential's shareholders in Britain will have little choice but to buy the new, discounted shares. Otherwise the vast number of new shares in issue would dilute their existing holdings.
But Marcus Barnard, an analyst at Oriel Securities in London, said it did not make sense for Hong Kong investors to buy into Prudential now, then participate in the cash call.
'Why not wait and see what happens,' he said.
According to Prudential's management, the AIA deal is a once in a lifetime opportunity for it to gain an enormous market share in this region.
If the acquisition goes ahead, Prudential will have market-leading positions in Hong Kong, Singapore, Malaysia, Indonesia, Vietnam, Thailand and the Philippines, making Asia its largest source of business.
Breaking the bank?
Some Prudential shareholders say its bid for Asia's AIA is too ambitious
Prudential's market capitalisation, in Hong Kong dollars, stands at: $147.91b
Its takeover bid for AIA is almost double that, at: $276.93b
