Prudential may launch $21-bn rights issue next week

The British insurance behemoth Prudential may launch its $21-billion rights issue early next week after agreeing to the proposed changes to the financing plans of its proposed $35.5-billion takeover of AIA, the Asian businesses of the failed American insurer AIG.

The British company was forced to delay the launch of its rights issue at the final hour last week after the British Financial Services Authority refused to agree to the proposed capital buffer of the enlarged company.

The acquisition of AIA would make Prudential the biggest foreign group in the fast-growing Asian insurance market and transform it into one of the world's biggest life insurers outside of China.

According to a Financial Times report, Prudential still has to win the final approval on its prospectus from the British Listing Authority, which aims to approve new versions of such documents within five days. The report further said the approval would not take more than 24 hours, and the rights issue could be launched as early as next Friday.

In recent days, Prudential has struck deals with AIG and its bankers have satisfied the British regulator's higher capital requirement norms for a group conducting the highly complicated takeover of such a large, multi-currency family of businesses, the report noted.

According to the report, AIG would now take $2-billion of junior debt instruments-–or hybrid capital-- instead of cash as part of its $35.5-billion takeover payment. Hybrid security is a financial instrument that combines both debt and equity characteristics.

The report further said new junior debt is part of a $5-billion slug of such instruments, which would add to the capital base of Prudential and are in place of the $5-billion of senior debt that would have funded the cash payment to AIG.

In addition, Prudential has also arranged a special 1-billion pound backstop facility that can be drawn down in the event of extreme financial stress, it added.

Shareholders have been waiting for weeks for the prospectus before deciding whether to support the deal in a vote, which had been scheduled for May 27 but is more likely now to take place in early June.