Prudential’s move to raise $21bn to part-finance its purchase of AIA hit a snag last week when the Financial Services Authority (FSA) blocked the rights issue process at the last minute. The regulator was concerned the UK arm of the enlarged group would not be able to access capital stored in Asia in the event of a “financial Armageddon” scenario.
Since then, Prudential has rearranged $5bn of senior debt with its advisers so it will be convertible into contingent capital – a form of security that suits the FSA’s requirements. AIG, AIA’s US government-owned parent, is also believed to have agreed to lop $2bn from the cash portion of the deal in exchange for a $2bn hybrid bond.
Shareholders are now expected to vote on the rights issue in June. The delay alarmed some investors following a string of gaffes by Prudential’s management, but the company insists it will push the deal through by the third quarter.