Hester plots RSA rights issue to shore up capital
RSA GROUP’S new chief executive Stephen Hester is set to launch a full blown rights issue this week, raising the stakes in his bid to strengthen the troubled insurer’s balance sheet.
Hester, who took the reins of the FTSE 100 firm last month, is hoping to raise £1bn through a rights issue, the sale of RSA assets and the removal of a dividend when he unveils results to the market on Thursday.
RSA yesterday confirmed it was exploring a rights issue to raise capital, but added that “no final decision” had been taken.
“Anything that we do we would have our shareholders’ support,” a spokeswoman added.
RSA was hit by a series of profit warnings late last year, which prompted the resignation of former chief executive Simon Lee in December.
Further concerns about losses caused by flooding in the UK have also weighed on the firm.
On Friday, Hester was reported to be exploring plans for a simple share placing, which would have capped the amount he raised to 10 per cent of RSA’s market cap, or around £350m.
Escalating the capital raising to a rights issue – which could be priced at a 35 per cent discount once new shares are issued – will increase the amount the firm can raise.
“Fundamentally you wouldn’t do a rights issue if you knew you could get all the money you needed through a placing,” Canaccord Genuity analyst Ben Cohen told City A.M..
“It’s hard to envision the money being raised being put to a productive use. That money is going to plug difficulties they have identified.”
The company is also set to scrap its dividend, saving £170m for the business this year.
A sale of non-core RSA assets, such as the firm’s Noraxis Capital Corporation in Canada, is also likely to be announced and is estimated to raise about £200m.
ADVISERS RSA INSURANCE
MICHAEL FINDLAY
BANK OF AMERICA
MERRILL LYNCH
RSA yesterday confirmed it was exploring the possibility of a rights issue to shore up its balance sheet. The company is working with its in-house brokers Bank of America Merrill Lynch and JP Morgan.
Heading up a team to advise on any share issue will be Bank of America Merrill Lynch corporate broking co-head Michael Findlay, who has been at the bank since August 2012.
Findlay, who also sits on the board of UK Mail Group as a non-executive director, originally left his role at the bank in 2010 to join boutique investment bank Moelis & Co, where he was partner and managing director.
He came to Bank of America Merrill Lynch from Merrill Lynch, where he occupied a similar position to his current role as co-head of corporate broking Europe and managing director for five years between 2005 and 2009.
Before that he was a managing director at Merrill, having moved there in 1998 from UBS and he started his career in the city as a research analyst at Robert Fleming.
Findlay is also chairman of Fin Capital, a family owned property company. He was also previously a non-executive director of RSM Tenon between 2011 and 2012.