As previously flagged, a £2 billion fundraising will be conducted in Hong Kong. Buy, sell or hold?
Fundraising via a public offer and international placing
- Looking to raise around £2 billion
- New shares to be listed on the Hong Kong stock exchange
Life and health insurer Prudential (LSE:PRU) today detailed plans to raise up to $2.9 billion (£2 billion) as it now focuses entirely on long-term growth opportunities in Asia and Africa.
The insurer, which has more than 17 million life customers in Asia and Africa, plans to sell approximately 130.8 million new shares or around 5% of its issued share capital through a public offer and international share placing via the Hong Kong Stock Exchange.
Prudential shares fell by more than 8% in UK trading, having gained by over 60% since pandemic market lows in March 2020. Shares for fellow life insurance firm Legal & General (LSE:LGEN) have about doubled in that time, while shares for Aviva (LSE:AV.) are up by more than 85%.
The public offer, which consists of an initial offer of approximately 6.5 million shares - but may be upsized to approximately 32.7 million shares - is only available to Hong Kong residents, and includes a preferential offer to eligible employees and agents of up to around 1.3 million shares.
The public and institutional share placing offer prices are expected to be determined on or around the 25 September, with the public offering price subject to a maximum of HK $172 per share or around £16.17 per share. Trading on the Hong Kong Stock Exchange is expected to begin on 4 October.
The fundraising follows the Prudential’s recently completed demerger of its US Jackson Life business. Most of the newly raised funds will be used to repay existing debt, giving it new financial flexibility to pursue Asian and African related growth opportunities. The Jackson demerger followed a previous separating-out its UK and European operations via the demerger of M&G (LSE:MNG).
Prudential shares continue to be listed primarily in London and Hong Kong, with secondary listings in both Singapore and New York. Pru management remains committed to its London listing, although is using the new money to expand both its Asian shareholder base and the liquidity of its Hong Kong listed shares.
Founded in 1848, Prudential sales today are generated via a network of around 560,000 agents, along with its access to more than 28,000 bank branches. Growth in Asia over recent years led to demands from activist investors for its geographical businesses to be separated. A development which has now happened, leaving the Prudential focused on business in Asia and Africa.
For investors, any issuance of new shares will weigh on a company’s share price given the normal dynamics of supply and demand. A separating-out of Jackson Life and M&G (LSE:MNG) has resulted in a rebased dividend for Prudential shares. A historic dividend yield of under 1% compares to historic yields at fellow UK listed life companies Aviva, Legal & General and Phoenix of over 6%. Operations in China and Hong Kong also leave it exposed to East West political tensions, while concerns for the spread of the Delta Covid variant remain.
That said, the transformation of Prudential now leaves it exposed to high-growth regions. Populations in Asia and Africa do not have the health safety net of say the UK’s NHS, for example. Double-digit growth for eight of these markets was reported in its recent first-half results. Pru’s digital platform Pulse also continues to be expanded. Since its launch in 2019, Pulse has been downloaded around 30 million times. In all, and while some caution given both pandemic and China political uncertainty remains sensible, likely growth in both Asia and Africa looks to underpin longer-term optimism.
- A split of its businesses gives greater management focus to each
- Growing online Asian sales
- Coronavirus disrupting sales
- Splitting the companies leaves each less diversified
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