AMP British unit to list at discount after split Mon 15 December, 2003 10:34
By Michael Smith
SYDNEY (Reuters) - AMP's British operations are expected to list at a sharp discount next week when the struggling Australian-based insurer completes its rescue package, splitting itself into two companies.
Analysts and fund managers expect the British life and funds business, HHG Plc, to list at A$1.00 or less, about 40 percent below AMP's AMP.AX last valuation, when the stock hits the boards in London and Sydney before Christmas.
About 54 percent of AMP's total assets are based in Europe, but based on a A$1.00 listing price, HHG will have a market capitalisation of just A$1.5 billion, about 17 percent of AMP's total current value of A$8.9 billion.
AMP paid more than three billion pounds for the British assets in an acquisition spree through the late 1990s, but the assets were hammered by the stock market slump from 2000 to 2003 -- the worst bear market in 50 years.
AMP's Australian unit will also be closely watched by investors when it relists, minus the HHG units, later this week as speculation about a takeover bid from National Australia Bank NAB.AX and other suitors cools.
"This is where people have to start making a decision on whether they want to start increasing their exposure to the Australian business in a considerable way," Deutsche Asset Management portfolio manager Nick Vidale said.
AMP announced on Monday a shortfall in its A$1.2 billion rights offer, which will be used to bolster its capital. The group said it will launch a A$650 million share sale to institutions over the next two days to make up for a A$585 million shortfall in the offer.
The shortfall was because AMP has a high proportion of small investors who could not afford, or did not want, to take up the rights issue. AMP's shares fell last week on speculation the shortfall would be higher than expected.
The 150-year-old AMP shocked the market in May when it unveiled plans to split, fencing off its British life units.
The fall in equity values raised concerns about the UK unit's ability to meet claims, helping push AMP shares down 70 percent over the past two years as it reported big losses and about A$4 billion in writedowns.
STEEP UK DISCOUNT
HHG comprises struggling life businesses Pearl, NPI, London life and the British arm of Henderson fund management. Analysts say Australian investors may dump HHG shares after the split, resulting in further big writedowns on the value of HHG.
"The closed nature of the UK life businesses, the 100 million pound capital raising, tight solvency, an absence of dividend capacity and a general lack of appetite from Australian investors point to a weak opening share price," ABN AMRO told clients.
British life insurers have been closed to new business, and AMP has declined to give clear earnings guidance for HHG. By contrast, AMP's Australian life and funds businesses are relatively healthy.
AMP bought Pearl in 1989 and merged it with London Life. It added Henderson for 382 million pounds in 1998 and completed its UK expansion in 1999 with the purchase of NPI in a deal valued at 2.7 billion pounds.
AMP management has indicated that HHG may list at a sharp discount and expects some volatility in initial trading. AMP had previously valued HHG at Stg1.3 billion, saying this translated into a share price worth A$1.70 or A$1.80 in the longer term.
It has also warned a weak share price could trigger bigger writedowns for HHG than the A$2.5 billion already flagged.
JP Morgan tips a listing price of A$1.00 to A$1.15 while Citigroup Smith Barney tips below A$1.00 and ABN Amro 82 cents.
However, some fund managers say the price may not be as bad as feared. "From what I hear, there seems to be a bit of demand out there for hedge funds and UK investors so I'm not totally convinced that there might be as big of a discount as people are thinking," said Deutsche's Vidale.
The new AMP is expected to relist in Australia at around A$4.50 to A$4.86, according to brokers, down from current levels around A$5.80.
At the lower price, this represents a price/earnings ratio on the company's 2004 forecasts of A$362 million to A$495 million of 14 to 19 times. This compares with a P/E of 12 for AXA Australia AXA.AX , Australia's only other listed life insurer.
The sale price to institutions and the outcome of the rights offer will be given on December 17. AMP shares will start trading ex-entitlement to the UK business on December 18. HHG shares are due to list in London on December 22 and Sydney on December 23.
AMP Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
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