RSA to Raise $1.3 Billion in Share Sale, Cuts Final Dividend

RSA Insurance Group Plc confirmed reports that it plans to raise £775 million ($1.3 billion) in a share sale and scrapped its final dividend to replenish capital depleted by a scandal at its Irish unit and appease bond-rating companies.

The rights offering, about 20 percent of RSA’s market value, has been fully underwritten and is expected to start at the end of next month, Chief Executive Officer Stephen Hester told reporters on a conference call today. He also said a final dividend “could not be justified.” The stock fell.

“We have reluctantly concluded we must ask shareholders, via a rights issue, for a substantial sum,” said Hester, 53, who joined the company three weeks ago. “This money is needed to get our capital position to a strong place.”

Hester succeeded Simon Lee, who quit after issuing three profit warnings in the fourth quarter and injecting £200 million [$332.75 million] into RSA’s Irish business amid an accounting probe into the unit. Standard & Poor’s cut RSA’s rating to A- in December and said it could be downgraded further, threatening the insurer’s ability to retain commercial clients.

The shares dropped 3.8 percent to 98.35 pence [$1.64] at 8:32 a.m. in London, giving RSA a market value of £3.62 billion [$6.024 billion].

Capital Surplus

RSA expects to have £1.3 billion [$2.1633 billion] of excess capital after the rights issue, compared with £200 million [$332.75 million] as of Dec. 31, the London-based company said in a statement. Hester is also selling “selected businesses” outside its core markets to help generate £300 million [$499.2 million] in 2014, with two disposals already under way.

RSA cited the U.K. and Ireland, Canada, Scandinavia and Latin America as its “core” markets, according to the statement. The company is planning to sell its central and eastern European units including Link4 in Poland and Balta in Latvia, three people with knowledge of the plan said last month.

The company reported a pretax loss for 2013 of £244 million [$406 million], from a profit of £448 million [$745.43 million] a year earlier. Any interim dividend in 2014 after the rights offering “is likely to be modest,” the company said

In an unrelated announcement Bloomberg also reported that Aviva Plc has rejected a bid from RSA of £5 billion [$8.32 billion] for its general insurance businesses in the U.K., Canada and Ireland because the deal wasn’t in shareholders’ interests.

–Editors: Jon Menon, Steve Bailey