If Prudential shuns the UK it can shun its regulator too
For a UK company to launch a record £13bn rights issue on the eve of a finely-balanced general election in its home country and a Greek debt crisis that is circling the globe looked a risky strategy.
The delay in Prudential Plc’s (LON:PRU) fundraising does nothing to boost confidence in the company.
Prudential wants the cash to buy AIA, the Asian operations of AIG, the American insurer now rescued and owned by the US government.
But the sum being sought from shareholders is almost as much as its current stock market value and investors would have to buy about four shares for every one they hold now.
Many shareholders will be pleased the Financial Services Authority has found last-minute questions that have deferred the issue, but if a deal like this cannot get off the runway smoothly it gives little reason to think it can land without a bump. The Pru has had two months to square this transaction with its regulator.
Quite rightly, FSA officials who allowed Royal Bank of Scotland to buy ABNAmro before the credit crunch do not want to allow another mega merger that ends in tears. But launching the deal at a second attempt will be much harder because of the fears raised by stalling the first take-off.
The deal already has critics who wonder whether it is worth paying $35bn even to buy into the fast-growing Asian markets. Pru’s hasty leaks that it will sell its UK and US operations to rebalance its balance sheet may have worried the FSA more than it pleased the regulator.
And it will worry investors who bought into Pru as a UK investment, who could tolerate it as a UK operation with an Asian business, but who do not want to be heavily committed to a purely Asian insurer.
That said, these investors are largely rivals to the Prudential as insurance or pension providers and in no mood to do their competitor any favours. If they could avoid buying Pru shares they would. That’s why the company had to think of a 40 per cent discount to sell its new shares even though it is paying £1bn in fees for underwriting the issue.
It is also why Pru is listing its shares in Hong Kong with a secondary listing in Singapore, where it thinks investors will like its shares. But if the Pru is to concentrate on Asia, sell its western businesses and list in the Far East, it might as well move its headquarters and registration there too. At that point it will have no reason to answer the UK regulator’s pesky questions.
