CLSA said Prudential’s management had “resorted to revising embedded value assumptions and using high growth targets” to justify the purchase of AIG’s Far Eastern arm, which will involve tapping investors for a $21bn rights issue.
Prudential this week upgraded its estimate of AIA’s embedded value by $1bn to $22bn and increased its new business value seven per cent to $610m. Chief executive Tidjane Thiam told analysts Prudential was “buying the right asset at the right time”, arguing embedded value would rise as capital was freed up while sales would rebound strongly from last year’s slump.
But CLSA analyst Patricia Cheng questioned whether Prudential’s promise to more than double AIA’s new business value to $1.7bn by 2013 was realistic.
She wrote: “It’s dilutive to pay a pricey premium and bet on a recovery. What if execution isn’t flawless?”
Prudential would not comment on an individual broker note.