Prudential Plc reveals demerger plans - includes £12 billion sale

Mar 15, 2018, 02:31
Prudential Plc reveals demerger plans - includes £12 billion sale

Jason Hollands of Tilney Investment said: "The news that Prudential is to split and spin-out its asset management dominated M&G Prudential business as a separately listed United Kingdom company is arguably a long overdue development".

Prudential will also keep its existing listing on the London Stock Exchange.

Rating actions include a downgrade of The Prudential Assurance Company Ltd's (PAC) and Prudential's USA subsidiaries" (collectively Jackson) Insurer Financial Strength (IFS) Ratings to "AA-' from "AA". John Foley, the current head of M&G Prudential, will remain in charge of that business. Eastspring will continue to serve as the Asian asset manager for Prudential, while M&G Investments will serve that function for Prudential M&G.

Given the size of the deal it will boost Rothesay Life's asset base to over £37 billion, which will make the firm the largest specialist annuity insurer in the UK.

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The capital benefit from the transition, it said, would be retained within the group to support the demerger process.

The move is created to help Prudential focus on its lucrative Asian, US and African operations while giving M&G Prudential "more control" over its own business strategy and the way that it allocates capital. Looking forward, we believe we will be better able to focus on meeting our customers' rapidly evolving needs and to deliver long-term value to investors as two separate businesses.

Separately on Wednesday, Prudential also said that it plans to sell off a £12bn United Kingdom annuities book to Rothesay Life.

Prudential will be able to focus on the "attractive returns and growth potential of its market-leading businesses in Asia and the US", he said.

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Prudential will remain headquartered in London, under current chief executive Mike Wells.

Prudential raised its full year dividend by 8% to 47p per share even as underlying free surplus capital generation fell by 1% to £3.6bn due to an increase in restructuring costs and a lower contribution from our U.S. business.

Its Asia business jumped 15 per cent in operating profits, compared with a 10 per cent increase in its United Kingdom and European division.

Prior to the demerger, the group's debt capital position will be re-balanced across Prudential and M&G Prudential, which may include the redemption or debt liability management of issued debt, and new debt issuance. Discussions have also commenced with our other key stakeholders, including rating agencies. "However, it's a shame the sale proceeds aren't coming back to shareholders, especially given that it's freeing up significant regulatory capital".

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'There is also the value release potential from the exit of £34bn of United Kingdom annuity assets to consider, with redeployment possibly leading to an additional 5% value release over time'.