PICC Property & Casualty, the non-life insurance arm of Chinese insurance giant PICC Group, is planning to raise $935 million from a fully underwritten rights issue of A- and H-shares, according to an announcement to the Hong Kong stock exchange late Monday.
The Hong Kong-listed company will tap its international shareholders, including US insurance company American International Group (AIG), for HK$2.25 billion ($290 million), while its single domestic shareholder will take up the entire A-share portion – or just over two-thirds – of the combined rights offering.
PICC P&C said it will use the money to strengthen its capital base and to improve its solvency margin.
AIG, which owns 31.9% of the H-share capital and 9.9% of the company as a whole, has committed to take up its entitlement in full. This means it will invest a further $93 million into PICC P&C to keep its stake unchanged.
The rest of the H-share offering, valued at about $197 million, will be fully underwritten in equal parts by CICC, Goldman Sachs and HSBC.
As per the announcement, holders of the PICC P&C’s Hong Kong-listed shares will have the right to buy 1.1 new H-share for every 10 existing shares they own. The price has been set at HK$5.38 per share, which translates into a 47.3% discount to the HK$10.20 closing price on Monday this week, which was the final trading day before the offer price was announced.
It also works out at a 44.7% discount to the theoretical ex-rights price of HK$9.72, based on the same closing price, and a 15.7% premium to the audited net asset value per share on December 31, 2012. The NAV on that day was Rmb3.71, or HK$4.65.
PICC P&C’s share price dipped as much as 4.9% to a low of HK$9.70 early yesterday morning, but then bounced back and spent the rest of the session in a range between HK$9.90 and HK$9.95. It finished at HK$9.94, which was just 2.6% lower on the day and well above the rights issue price, suggesting that investors welcomed the capital raising.
The stock has underperformed the broader market this year and is currently down 8.5%, compared with a 3.1% gain in the Hang Seng Index.
The company will issue approximately 418.2 million new H-shares, which will account for 11% of the existing H-share capital and 3.4% of the total share capital including the company’s Shanghai-listed A-shares.
Shareholders will be able to apply for excess H-shares and such requests will be honoured if some investors don’t make use of their entitlements.
PICC P&C’s H-shares will start to trade without the rights attached from May 28 and any shareholders who do not want to make use of their rights can trade them in the market between June 5 and June 13. The offering will close at 4pm Hong Kong time on June 18.
As noted, the A-share offering will be bought entirely by PICC Group, since it owns all the domestic shares currently in issue.
PICC Group, which is the controlling shareholder of PICC P&C, said in a separate announcement yesterday that it believes the rights issue is beneficial to the business development of PICC P&C. It noted the company’s relatively high profitability and leading 34.9% market share in mainland China in 2012, in terms of total written premiums.
The A-share portion will see PICC P&C issue approximately 12.6 billion new A-shares on the same 1.1-for-10 basis, which will equal 11% of the domestic share capital and 7.6% of the company as a whole. PICC Group’s stake in the property & casualty arm will remain unchanged at 69% after the deal.
The offer price will be Rmb4.30 per A-share, which is the same as the H-share offer price after adjusting for the exchange rate.
The new A- and H-shares will be issued under the company’s existing shareholders’ mandate from June last year and PICC P&C has also obtained all the necessary regulatory approvals already.
CICC is the sole global coordinator for the rights offering as well as a joint lead underwriter and joint bookrunner together with Goldman Sachs and HSBC.