Prudential has secured backing of around $1bn from two sovereign wealth funds for its audacious $35.5bn bid (£23.5bn) for AIG's Asian assets.
The life insurer last night confirmed that the Government of Singapore Investment Corporation, already a shareholder in the company, and Qatar Holding LLC had agreed to underwrite "a significant portion" of the £13bn rights issue it is using to help fund the deal.
Singapore currently has a stake of under 1 per cent, while Qatar is a newcomer to the register. The involvement of the sovereign funds is likely to ease doubts about the success of the bid. The two are thought to have put up around $1bn, although an exact figure was not disclosed.
Prudential also announced the massive syndicate of 30 banks formed by Credit Suisse, HSBC and JP Morgan Cazenove to underwrite the issue. The syndicate is unusually large and will therefore spread the risk if investors fail to fully subscribe for the new shares that will be issued.
Prudential had secured the support of key investors for the deal before it was announced, but the shares took a tumble falling by 12 per cent on Monday, when it was announced, and 8 per cent on Tuesday. However, since then they have begun to recover and yesterday rose 13p to 513p, a gain of 2.5 per cent. While they are still well below the level when the deal was announced, the recovery will provide some reassurance as Prudential works to complete the deal.
Tidjane Thiam, Prudential's chief executive, has described the Asian business as "a unique opportunity" that will make it the leading player in nearly every market in the world's fastest-growing region. Prudential will also take a secondary listing in Hong Kong as part of the deal, which will see nearly two-thirds of its earnings hailing from Asia.
AIG is controlled by the US Government after an $85bm bailout. Although the payment is largely in cash, it will have an 11 per cent stake in Prudential after completion. In dollar terms the rights issue will raise $21bn gross, $20bn net. The difference will be shared by the banks and other advisers in fees of around $600m. The remainder is the cost of the company of hedging against currency movements which might otherwise derail the bid.Reuse content