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The Sydney Morning Herald

IAG issue sought $380m, received $93m

Author: Anthony Hughes
Date: 23/11/2002
Words: 426
          Publication: Sydney Morning Herald
Section: Business
Page: 48
Shareholders have given Insurance Australia Group an embarrassing knock-back only a fraction of its 1.1 million retail investors are backing its $380 million share purchase plan to help fund the $1.86 billion acquisition of CGU/NZI.

IAG revealed yesterday that retail investors had subscribed for just $93 million or 24 per cent of the offer, leaving UBS Warburg and Deutsche Bank holding some stock.

This response equates to about 50,000 shareholders or less than 5 per cent of the shareholder base.

UBS and Deutsche have sub-underwriting arrangements in place that mean that institutional investors will take a ``substantive portion" of the stock, but it could leave the company with a stock overhang that might depress the share price.

IAG fell 4c to $2.38. UBS was the largest net buyer with 5 million shares, as it stepped in to partly support the stock on its own book.

But IAG managing director Michael Hawker denied there would be an overhang, saying institutions which sub-underwrote the offer were ``no dummies" and were prepared to take the stock.

Many have also taken shares in the $500 million institutional component of the offer.

Mr Hawker denied the general insurance problems of recent years and controversy at the NRMA had affected the response from investors, though he conceded it was difficult to promote the offer to IAG shareholders at this time.

``I would have hoped we would have got more because we think [the CGU acquisition is] a great transaction but it's obviously not a great time for people," he said.

``It's always difficult to work out how many we were going to get. Many have received shares through demutualisation and are the only shares they have ever owned."

The result illustrates investors' reluctance to back such big offerings close to Christmas, particularly since the price at demutualisation in 2000 was higher at $2.75.

The poor reception also spells difficulties for other parties wishing to raise money, including Royal & SunAlliance, which hopes to float its Australian operations next year.

Some say this is just a ploy to lure a trade buyer, though the London-based Royal & Sun has struggled to find a buyer and the likely candidates have diminished to either Suncorp or QBE.

IAG will accept late applications for the shareholder purchase plan until Tuesday.

The final price will be the lower of $2.55 and a 5 per cent discount to the market price in the next 10 days of trading. The price is expected to be announced on December 9.

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