Challenger Bank [ASX:CGF] Launches Securities Offer of $250 Million for Life Insurance

Financial services and digital banking group Challenger [ASX:CGF] has decided to get the ball rolling on raising $250 million as an offer of new, unsecured, perpetual convertible securities in the form of Challenger capital notes.

The reason for the fund raiser is to use the proceeds for further tier 1 capital of its registered life insurance company, Challenger Life.

Shares for Challenger were trading for $7.44 at time of writing, the share price holding mostly flat in the early morning hours after the capital raising offer was released to the ASX.

Over the past 52-week cycle, the digital finance group saw its stock worth increase 19%, and despite a 2% drop in the current financial year so far, it’s up 10% and 12% in its sector and the wider market, respectively:

Challenger seeks $250 million for life insurance division

Challenger has launched the offer of a new, unsecured, perpetual convertible security, ‘Challenger Capital Notes 4’, to raise $250 million for a subscription supporting tier 1 capital of Challenger Life.

The offer was launched under a prospectus with the Australian Securities and Investments Commission earlier today and provides the opportunity for certain eligible CCN2 holders to apply to reinvest all or some of their Challenger Capital Notes 2 into the Challenger Capital Notes 4 Reinvestment Offer.

The group expects to begin the resale of proceeds for reinvestment into the group on 5 April, and outlined certain eligibility criteria for those investors who may be interested in taking part.

Such conditions included that the investor must be either an institutional investor or client of a Syndicate broker, either wholesale or retail investor, who has first received professional advice.

Alongside the reinvestment offer, Challenger intends to redeem outstanding capital Notes 2 for their face value ($100 each capital note).

Challenger group financial snapshot

Last month, the financial services provider reported statutory net profit after tax (NPAT) of $123 million for the first half of fiscal 2023. This was a 56% decrease on the first six months of fiscal 2022, however not counting taxes, the group’s profit was $250 million, which was up 5%.

Life sales reached $5.5 billion, which had gone up 11% half-on-half, and return on equity (ROE) of 12.3% — an increase of 20 bps.

Challenger paid out dividends of 12 cents a share, in line with its payout policy, and an increase of 4% on its previous dividend.

The financial group said it reached its highest annuity rates in the last 10 years and flagged attractive rates which will support new business demand and reinvestment maturities.

Challenger forecast normalised net profit before tax guidance between $485 million and $535 million for the full year FY23.

The company remains as uncertain as many others in terms of interest rate movements and noted it has been a difficult time for savers to reach a decent yield.

While the bank itself would not comment on rate hikes being of benefit to the group’s forecast, analysts believe higher interest rates could support margin improvements for annuities and banking

Regards,

Mahlia Stewart

For Money Morning
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