AMP braces for rights shortfall

Nick Stride

Friday 12th December 2003

Analysts expect a hefty shortfall in AMP's $A1.2 billion ($1.4 billion) rights issue but say the group's demerger plan will not be affected.

The company's 900,000-plus shareholders voted overwhelmingly at Monday's meeting in favour of the demerger of the Australia and New Zealand arm from the troubled British operations, which have sucked up nearly $A6 billion in capital in the past two years.

Some analysts estimate only half of the $A1.2 billion will be subscribed.

But the shortfall will be taken up by institutional investors in a bookbuild planned for Tuesday and Wednesday.

The price for the rights will be set at a 10% discount to the price the bookbuild sets and will be announced on Wednesday. Shares in the "new" AMP will begin trading the next day and ASX trading in HHG, the British arm, will begin on December 23.

Chairman Peter Willcox told the meeting new AMP shares were likely to begin trading at a lower price than the old AMP because at that point HHG would have been effectively separated from the group.

Trading in both shares was likely to be volatile as markets sought to value the two entities.

One unknown is the size of the further HHG writedown AMP has flagged.

In the explanatory memorandum the company estimated this at $A2.5 billion, based on directors' valuation of HHG.

However, Mr Wilcox said, it could be higher if HHG traded below that valuation, leading to a "substantial negative impact" on AMP's 2003 results.

That was because accounting standards required AMP to account for the demerger as if the group was selling HHG, at a price equal to the value the market places on the British company in initial trading.

One indicator the rights issue will fall short is the fact this is the second time this year AMP has tapped shareholders' pockets.

In May it raised $A1.7 billion through a placement to institutions and an offer to retail shareholders.

In addition, most shareholders didn't choose to buy AMP shares, but are policyholders or former policyholders who were allocated them when the group demutualised in 1998.

Mr Willcox addressed the much-asked question of why AMP was keeping a 15% HHG stake when the British unit had already inflicted so much damage on the group.

HHG, he said, needed recapitalisation to make it into "a strong company attractive to investors in its own right."

AMP could have provided the capital for nothing but opted to take HHG shares in exchange.

He acknowledged there was potential for HHG to be undervalued by the market in its early days.

Chief executive Andrew Mohl, who has been on tour selling the demerger, has reported some institutional investors are attracted by the opportunity this might represent.

But he has also been urging shareholders not to dump their HHG shares without careful thought.

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