Bond market shuns Standard Life issue

Standard Life, which is trying to raise £750m of capital, is being shunned by the bond market and ratings agencies until it can give more assurances on its financial strength.

The company said it would be at least March before it would raise the £750m it outlined last month. The capital-raising plans came as Standard revealed it was struggling to adopt new solvency rules set by the regulator. "We won't be going to the market before the second quarter. We will go when the timing is right," a spokesman said.

This delay is thought to be because bond investors have made it clear they want a very high price for taking on Standard's debt. Based on their current knowledge of the company's financial position, bond investors would want a spread of about 3 per cent above the gilt yield. This is an expensive coupon for Standard to pay. "It will be difficult for Standard to raise this money until the capital position becomes clearer. People at the moment are scared by the uncertainty and if Standard were to come to the market now, we would make them pay up for it," one bond manager said.

The company is also believed to be facing difficulty in raising capital because the ratings agencies are taking a very negative stance on their finances.

The agencies Standard & Poor's and Moody's both downgraded Standard Life to A+ last month. "Standard will be quite challenged to carry out what it wants to do," Manish Bakhda of S&P said, indicating that it may be downgraded further. Any new debt issue would be rated at least two notches below the parent company. Another bond manager said: "If the new debt rating goes down to BBB- then it is on the cusp of being junk. Things then look a little hairy for Standard."

Standard has been caught out by new solvency rules that force it to make reserves for guarantees.

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