RSA cash call fears trigger share slump
RSA INSURANCE saw its shares fall by five per cent yesterday after it refused to quell fears that it is considering asking markets for $1bn (£619m) in a cash call.
Shares in the group slumped 4.75 per cent to a close of 124p as the size of the potential rights issue shocked investors.
The stock was among the main fallers on UK markets, and helped drag the benchmark FTSE 100 index of blue chip firms down to a 1.8 per cent decline by the close of trading.
Analysts were surprised as RSA is seen as having one of the healthiest balance sheets in the insurance sector, with a regulatory surplus of £1.7bn.
Many said they thought the cash call would not attract much interest as the group’s growth prospects are lacklustre compared to rivals.
The group should not be investigating a rights issue, which would dilute the holdings of existing shareholders severely, unless the move is aimed at acquiring another firm, they said.
ING’s Kevin Ryan said: “It seems very peculiar. As far as I can see they don’t need the capital and they don’t need the cash.
“Unless there is a deal behind it I don’t see why they would do it. I can’t imagine the management getting away with it, and in this instance I can’t see why they would want to.”
Credit Suisse analyst Paul Lloyd said the move could be part of a bid to boost growth at the group, by buying assets “mainly outside the UK and possibly in Latin America where it already has an existing presence and decent market shares”.
Freddie Neave, of Cazenove Global Equities, said the new capital might be used to grow organically, rather to make new acquisitions.
“If management sees sufficient opportunities to take advantage of dislocation among peers to accelerate organic growth, this would probably command reasonable investor support,” he said.
It is believed that RSA chief executive Andy Haste has enlisted investment banks JP Morgan and Merrill Lynch to examine a potential cash call.
The group has completed six minor acquisitions so far in 2009 and has said it is eyeing further opportunities in emerging markets.