French insurer in 2bn cash call as it turns eyes to the east

FRENCH insurance giant Axa is launching a rights issue to raise 2 billion (£1.78bn) to fund its global expansion, including its bid for full control of its majority-owned Asian arm Axa Asia Pacific Holdings.

The group has announced a two-stage deal. First, Axa's regional partner AMP of Australia will buy all of Axa Asia Pacific, including the 54 per cent owned by the French parent. The deal values Axa Asia Pacific at about $10.3bn (6.2bn). Second, AMP will sell most of the business to Axa for about $7bn, but keep the Australian and New Zealand units for itself.

Axa Asia Pacific has rejected the proposal, saying it undervalues the business, but analysts said it was likely the parties involved would reach an agreement. "The deal will probably get done, although Axa won't be prepared to overpay," said Fabienne Girard-Tokay, a fund manager at Mandarine Gestion, which owns Axa shares. "Axa Asia Pacific is one of the jewels in the crown and it's a very good idea to buy out the minority shareholdings."

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Axa, one of the world's biggest insurers, wants to gain a tighter grip on the strong growth potential for its business in Asia. The insurance market in Asia is growing faster than Europe and the United States.

Axa's rights issue was set as a one-for-12 issue at a price of 11.90 – a discount of about 30 per cent to the closing share price on Friday of 16.88. Axa said its leading shareholders had agreed to take up their allotment of new shares, with the remainder fully underwritten by a syndicate of banks.

It said the rights issue would also give it cash for acquisitions in other fast-growing areas, such as central and eastern Europe.

"Axa's exposure to fast-growing markets is weak," CM-CIC Securities said in a research note. "This deal, along with others made possible by the rights, will help Axa significantly increase its market share."

Axa will get further cash for possible acquisitions from the planned sale of a 15.6 per cent stake in Taikang, China's fourth-biggest life insurer. Reports suggest that the stake had attracted foreign and domestic bidders, including Temasek and Blackstone, valuing the holding at more than $1bn.

Axa inherited the stake in Taikang in 2006 when it agreed to buy Swiss insurance company Winterthur. Girard-Tokay said China would remain a key market for Axa, despite its planned Taikang stake sale.

"The Taikang sale shows the difficulties western firms sometimes have working with Chinese partners," she said. "But it does not mean that Axa is abandoning China."

She added that Girard-Tokay would subscribe to Axa's rights issue.

Axa's plans to expand in Asia come as banks and insurers prepare for a possible wave of consolidation as companies make plans for a recovery from the global financial crisis.

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