Promina out to tempt investors

By PAUL PANCKHURST

Retail investors are being wooed into the blockbuster float of Promina - the New Zealand and Australian arm of insurer Royal & SunAlliance - with a 10Ac a share discount on what institutions will pay.

Promina is seeking to raise between $1.74 billion and $2.29 billion in the biggest initial public offering in Australia since 1998. It will also be the biggest in the world so far this year.

The company's dual listing will also be a welcome shot in the arm for the quiet New Zealand Stock Exchange.

Promina employs more than 6000 people in Australia and New Zealand and is one of the biggest players in the insurance sector.

Here, its insurance and financial services brands are AA Insurance, SIS Insurance, Royal & SunAlliance, Guardian Trust, Axiom and International Marine.

Across the Tasman, its businesses are AAMI, Royal & SunAlliance, Australian Pensioners Insurance Agency, Tyndall and Shannons.

Promina chief executive Michael Wilkins said he believed investors would find the dividend yield forecast by the company to be quite attractive.

"Importantly, following the offer, we will have a strong capital base, low-risk investment portfolio and an ungeared balance sheet, positioning the business well to capitalise on future growth opportunities."

Promina's British parent would receive about A$1.95 billion ($2.12 billion) from the float, with A$150 million being retained by Promina.

If the share offer was not fully taken up, Royal & SunAlliance could become a minority stakeholder in Promina, Wilkins said.

The price of the shares will be set by institutional investors in a "book build" - a bidding process - from May 7 to 9 and revealed on May 12, the day the shares start trading on the Australian and New Zealand stock exchanges. The retail investors will get a 10Ac discount.

The "indicative price range" in the offer documents is A$1.50 to A$2 a share.

Institutional investor Andrew Bascand, of Alliance Capital Management, highlighted the "difficult" timing for the IPO, which was forced by the British parent company's capital shortfall.

"Global investors are focusing on the war and the Sars virus outbreak," he said.

New Zealanders and Australians could already invest in the insurance sector through companies such as QBE, IAG and Tower, which were trading at attractive multiples of share prices to earnings.

The issue would need to be priced at the lower end of the range, he said.

In Australia, UBS Warburg senior analyst Frank Costigan said retail investors had previously been burnt by insurance companies.

"I don't think there's going to be a lot of retail demand."

Promina is forecasting a net profit of A$188 million for this year, compared with last year's loss of A$291 million, which included an A$425.3 million writedown of the value of the company's financial services business.

On the basis of 1.057 billion shares on issue - the float's maximum - that would mean a price/earnings ratio for retail investors of between 7.9 (based on an issue price of A$1.40) and 10.7 (based on a price of A$1.90).

One issue for investors to study closely in the prospectus is the company's long-term exposure to asbestos-related claims in Australia.

On a topic closer to home, leaky buildings also got a mention.

The company said it had received "a small number" of claims connected with the chronic rot problem.

New Zealand retail investors will apply for shares at $2.15 each.

They will be refunded the difference between that amount and the final retail offer price - converted into New Zealand dollars on the basis of the exchange rate at 4pm on May 9, the day the institutional offer closes.

The retail offer opens on April 14 and closes May 2.

How much and when

* Maximum retail application price: A$1.90

* Retail offer closes: May 2

* Share price revealed: May 12

* Shares trade: May 12

* Forecast retail dividend yield: 5%-6.8%