Insurer to raise hundreds of millions to fund acquisition

Insurer to raise hundreds of millions to fund acquisition

Insurer to raise hundreds of millions to fund acquisition Insurance Australia Group’s wholly owned subsidiary, Insurance Australia Limited (IAL) has commenced marketing a proposed new subordinated debt issue to wholesale investors, which involves raising a minimum of $200m of subordinated debt to partially fund the acquisition of Wesfarmers’ underwriting business.

The $200m of subordinated debt which is expected to qualify as Tier 2 Capital under the Australian Prudential Regulation Authority’s (APRA) capital adequacy framework. The proposed issue includes the following terms:
  • A term of 26 years (maturing March 2040), subject to rights of conversion or redemption as outlined below;
  • IAL has an option to redeem the securities at face value between years 5 and 6 and for certain tax and regulatory events (in each case subject to APRA’s prior written approval);
  • The securities are convertible into IAG fully paid ordinary shares (IAG Ordinary Shares) at the option of holders on certain dates from year 8;
  • If APRA determines IAG or IAL to be non-viable, the securities will convert into IAG Ordinary Shares or, if that is not possible, the securities will be written off;
  • The number of IAG Ordinary Shares received on conversion will be based on a volume-weighted average price (VWAP) over a certain period, less a discount of 1%. The number of IAG Ordinary Shares will be capped at a maximum number set by reference to the VWAP of IAG Ordinary Shares at the issue date (50% of that VWAP for conversion at the holder’s option and 20% of that VWAP for conversion on non-viability);
  • Securities may be issued in fixed and / or floating rate tranches with the margin to be determined by a book build process; and
  • IAL has an option to defer payment of interest in certain circumstances.
No shareholder approval is needed for the issue. IAG expects that this acquisition will be completed in the second quarter of calendar 2014, subject to regulatory approvals. The ACCC is currently undertaking a informal investigation into the deal, and will report back at the end of this month. Industry sources have suggested the acquisition will be approved with few, if any, roadblocks.