By: Moderatore on Martedì 15 Aprile 2003 02:42
Allianz, Munich Re to Raise More Funds Than Planned (Update4)
By Silje Skogstad
Munich, April 14 (Bloomberg) -- Allianz AG, Europe's biggest insurer, and Munich Re, the world's largest reinsurer, will both raise more funds than planned by selling stocks and bonds, suggesting reduced concern about their credit and profit outlook.
Allianz on Saturday said it will raise 4.4 billion euros ($4.7 billion) by selling shares to existing investors, more than the 3.5 billion euros to 4 billion euros first targeted. Munich Re sold 20 percent more than planned of bonds denominated in pounds Friday, bringing the total raised to $3.7 billion.
Munich Re and Allianz tapped bond and stock investors to replenish capital after a three-year stock slump eroded funds they need to underwrite new business. Both companies lost their top credit ratings last year and their market values have fallen by a combined 98 billion euros since the end of 2001.
``Capital increases and management changes have helped lift investor confidence in European companies lately,'' said Juergen Homola, who helps manage 3 billion euros at Cominvest Asset Management in Frankfurt. Allianz's pricing of the new shares at 38 euros apiece ``is a signal of strength,'' he said.
Highlighting the increase in investor confidence since they announced plans to raise funds last month, Allianz and Munich Re shares gained 14 percent and 13 percent, respectively, in the past five days before today. The two stocks are the second- and third- worst performers on the benchmark DAX 30 Index this year.
`Positive Reaction'
Allianz shares rose 70 cents, or 1.2 percent, to 57.65 euros at 12:13 p.m. in Frankfurt. Munich Re shares gained 30 cents, or 0.4 percent, to 72.69 euros after rising as much as 2.2 percent.
Merrill Lynch & Co. analyst Brian Shea today raised his rating on Allianz shares to ``neutral'' from ``sell,'' citing the ``greater margin of safety to the balance sheet'' from the share sale. Munich Re shares also were upgraded to ``neutral.''
Allianz increased the total volume of the rights offering ``due to the positive market reaction,'' the company said Saturday in a statement to the Frankfurt exchange. Investors can take up their rights to buy seven new shares for every 15 held from April 15 through April 29. The subscription rights will be traded on the stock exchange through April 25.
The subscription period ends on the same day Allianz holds its annual shareholders meeting. Michael Diekmann will replace Henning Schulte-Noelle as chief executive officer that day. In addition to restoring capital, Diekmann also faces the challenge of turning around Dresdner Bank AG, analysts said.
`Too Risky'
``All things being equal, more equity capital weakens incentives of management to improve operational efficiency,'' said Michael Haid, an analyst at Sal. Oppenheim. ``Allianz's capital structure has become too risky.''
The insurer will sell stock at 38 euros apiece, 33 percent less than Friday's close. That's more than the 30 euros at which Goldman Sachs Group Inc. and other banks agreed to underwrite the stock in March and less than the 49 percent discount offered by French reinsurer Scor SA in November.
Munich Re, which tapped bond investors only with its fund- raising plan, last week issued 3 billion euros in the largest subordinated debt sale ever by a European insurer after lifting from the 2 billion euros it had marketed. Two days later, it boosted the sale of bonds denominated in pounds.
The bond sales may be enough for Munich Re to forestall further credit-rating cuts, though they won't be sufficient for Munich Re to win back its AA+ grade, which it lost last month, analysts said. Nor will it replenish the almost 6 billion euros of capital lost as its stock investments tumbled.
Rating Cuts
Standard & Poor's last month lowered Allianz's long-term credit and financial strength rating one grade to AA- with a negative outlook as the insurer reported a 1.2 billion-euro loss for 2002, compared with a profit the year before.
The share sale is part of a plan to raise about 5 billion euros this year by selling stocks and bonds. The company will give details of a planned subordinated bond sale in the second half, spokesman Stefan Denig said in a telephone interview.
Allianz's 2 billion euros of 6.125 percent subordinated unsecured bonds due in 2022 yield 5.36 percent, or 0.6 percentage points more than German government debt of equivalent maturity.
That premium, or spread, which narrows as investors become more confident in a company's creditworthiness, has shrunk from 1.25 percentage points in the past four weeks. The bonds are rated A1 by Moody's Investors Service and A by S&P.
Severing Ties
Munich Re's 3 billion euros of 6.75 percent bonds due in 2023, also unsecured subordinated debt, yield about 6.44 percent, about 1.64 percentage points more than government debt. The bonds are rated A2 by Moody's, and A by S&P.
S&P, Moody's Investors Service and Fitch Ratings all have negative outlooks on Munich Re, meaning they are more inclined to cut its ratings. The company had a 2.2 billion-euro loss in the fourth quarter after writedowns of 1.4 billion euros.
Both Allianz and Munich Re have reduced the share of equities in overall investments to shield against further stock market declines. Munich Re cut stockholdings to 15 percent last year from 33 percent. Allianz's life insurance arm, Allianz Leben, cut the share of stocks to 12.3 percent from 21.7 percent.
And to reduce their dependence on each other, the two companies agreed to reduce their cross-shareholdings to 15 percent. They both pared those stakes to less than 20 percent in the first quarter by selling stock on the market.