Prudential considering $3bn equity raise, will demerge US business

Prudential shares tumbled on Thursday after the insurer announced plans to separate its US business and said it was considering raising up to $3bn in new equity.

The company will pursue the separation of Jackson Financial in the second quarter of this year through a demerger, whereby shares in Jackson would be distributed to Prudential shareholders.

The demerger, which is subject to shareholder and regulatory approval, would lead to a significantly earlier separation of Jackson than would have been possible through a minority IPO and future sell-downs, Prudential said.

"This accelerated process would complete Prudential's transformation into a group focused exclusively on the high-growth opportunities of Asia and Africa," it said.

At the point of demerger, Prudential would retain a 19.9% non-controlling interest in Jackson, which it would monetise over time to support investment in Asia.

Prudential also said it was considering raising new equity of around $2.5bn to $3bn in Hong Kong or London, as it looks to increase its investor base in Asia. "Such a transaction, if executed, would maintain and enhance the group’s financial flexibility in light of the breadth of the opportunities to invest in growth," it said.

The company also confirmed that the overall quarterly sales trajectory in Asia has continued to improve in the second half of 2020 and operating performance for the year is set to be in line with current market expectations.

Prudential’s 2020 preliminary results are due on 3 March.

At 1500 GMT, the shares were down 9% at 1,220.00p.

JPMorgan said: "Overall we believe that today’s news is a short-term negative; however an accelerated de-merger of Jackson would help the shares in the medium to long term. In terms of capital raise, we note that Prudential's earlier plan was to retain proceeds from Jackson’s IPO, so we don’t see a capital raise as a major negative."