AXA Asia Pacific Holdings gave little hint ten days ago that it needed fresh capital.
A lengthy presentation to a London investment conference detailed the company’s ambitions, what it had done to cut its exposure to equities and the forms of “insurance” it had taken out to protect itself against changes in markets and interest rates. But it was mum on needing half a billion in fresh capital. The company had a rough 2008: a small rise in operating earnings was changed to a big loss because of asset write-downs.
Now the further drop in stockmarkets since December 31 has eroded the margin of capital the company keeps above its regulatory limits, meaning it has had to go to the market to raise cash. The fall in the margin is despite the roughly 10% rise in markets in the past week.
It is planning a placement to institutions of 175.4 million shares at $2.85 each to raise $500 million. It also plans to offer up to $10,000 worth of shares to retail investors through a share purchase plan, raise between $75 million and $185 million, while reserving the right to scale back orders. As well, AXA Asia Pacific is planning a “top-up offer” to a small number of eligible shareholders who would otherwise be diluted by the placement and the share placement plan.
“This capital raising is part of AXA APH’s ongoing capital management program to further strengthen its balance sheet,” it said in a statement to the ASX.
AXA Asia Pacific’s total assets above regulatory capital requirements totalled $779 million at December 31, but their value has since fallen in line with capital market declines.
“Following further falls in investment markets, the total assets above regulatory capital requirements have been within the range of $500-$600 million since the beginning of March,” it said.
AXA Asia Pacific said it wants to reduce its gearing ratio to 41% by repaying $210 million of senior debt, if it raises more than the $660 million targeted under the equity raising. It said if the maximum possible amount is raised through the share purchase plan and top-up offer, it could raise a total of $890 million.
Following the capital raising and debt repayment, the group estimates its total assets above regulatory capital requirements will be in the range of $900 million and $1 billion.
Its largest shareholder, AXA SA of France, will participate in the institutional placement and take up enough shares under the share purchase and top-up plans to maintain its current controlling 53.1% stake.
Further details of the share purchase plan and top-up offer will be provided to eligible shareholders shortly. The placement and share purchase plan have been underwritten by Goldman Sachs JBWere Pty Ltd and UBS AG, Australia Branch.
In its year-end profit announcement in February, operating earnings rose 2% to $555.6 million (2007 — $543.7 million). Profit after tax, before investment experience and non-recurring items was down 1% to $596.8 million (2007 — $604.8 million).
“Over the course of 2008 domestic and global equity markets reduced by 41 percent and 40 percent respectively. This led to negative investment earnings of $537.7 million (2007 – $234.8 million), $722.7 million lower than our normalised investment earnings,” the company said.
The after tax loss for the year including previously disclosed non-recurring items of $152.8 million (2007 a negative $5.9 million) was $278.7 million (2007 — profit after tax $638.7 million).
AXA shares were trading at $3.22 before the halt.