Shares in insurer Prudential (PRU) were the worst performers in the FTSE 100 on Thursday, dropping 9% to £12.18, after the firm announced it had abandoned plans to float its US subsidiary and was eyeing a sizeable capital increase to de-leverage and fund further expansion in Asia.
Rather than follow its original strategy of listing its US business, Jackson Financial, and reducing its remaining stake over time, the company's board has decided to de-merge the company in the second quarter of this year and distribute the majority of shares to Prudential shareholders.
While this would lead to a much quicker separation of the business than an initial public offering (IPO) and subsequent sell-down, which analysts believe could take up to 18 months, the share price reaction suggests investors would rather have had the cash than take paper in a US company with no immediate way of monetizing it.
Moreover, Jackson is not paying a pre-separation dividend to Prudential as it needs to retain capital within its insurance businesses. Post the demerger, Prudential said it expected Jackson to list itself in the US, although it gave no timetable.
To add insult to injury, Prudential said it was considering raising between $2.5 billion and $3 billion of new equity, either in London or Hong Kong, in order to pay off some of its high-interest debt.
Given the firm’s tilt towards Asia, a placing in Hong Kong could help increase the firm’s investor base in the region although it would lock out UK investors.
Chief executive Mike Wells said the demerger would ‘significantly accelerate Prudential's transformation into a business purely focused on profitable growth in Asia and Africa’, and that ‘any future equity raising by Prudential will allow us to capture even more fully the rapid growth in the health, protection and savings needs of people in our chosen markets’.
