UK insurance giant Prudential (PRU) falls 8.2% to £13.27 as it unveils plans to raise £2 billion via a public offer and international placing on the Hong Stock Exchange.

The weakness in the share price may reflect concern over the escalating crisis affecting major Chinese property developer Evergrande amid fears of contagion.

This share placing is not open to UK investors. The group will offer shares equivalent to 5% of its issued share capital, with a provision to allow for the issuance of an additional 32.7 million new shares.

WHAT'S THE MONEY FOR?

The public offer price is expected to be determined on 25 September, and trading is anticipated to start on 4 October. The proceeds will be used to pay down high coupon debt and also for investment to grow its Asian and African business.

Prudential’s decision to raise additional funds via a public offer is part of the group’s broader strategic. Last week the company completed the demerger of its American annuities business Jackson Life.

Prudential has consistently struggled to generate consistent returns from what is a mature but well regarded annuity business. Exiting Jackson provides management with the opportunity to generate capital that it can invest more lucratively in its Asian operations.

Prudential has a leading position in fast-growing and increasingly affluent Asian markets, where it focuses on savings and health and protection products, supported by a leading agency and bancassurance distribution network.

STRONG GROWTH IN ASIA

Prudential has a strong business franchise that extends across China to India. Hong Kong is the largest market with respect to Annual Premium Equivalents or (APEs), with the region constituting 39% of pre-pandemic APE’s, and 25% of pre-pandemic operating profit. Prudential has a number three market share position among foreign players in Hong Kong, and number five position overall.

Asian life insurance continues to grow strongly and Prudential's agency distribution network seems well placed to capitalise on strong medium-term trends to higher insurance penetration. Margins are high and seeing little pressure, while volumes are shrugging off recent volatility in emerging markets

Recent first half results revealed an unexpected strength in the recovery of Asian sales. Overall, sales and margins both significantly exceeded consensus expectations, with APE (annual premium equivalent) beating by +6.9%, and NBP (new business profit) by +8.8%.

The group continued to see good momentum in China with new business profit up by 65%, and in its growth markets where NBP increased by 44%. Equally impressive was the recovery in the more mature markets of Singapore and Malaysia where NBP increased by 65% and 59% respectively.

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Issue Date: 20 Sep 2021