UK’s Prudential could weigh IPO for Asia unit

By Myles Neligan and Denny Thomas

LONDON/HONG KONG (BestGrowthStock) – Prudential Plc (PRU.L: ), Britain’s biggest insurer, could consider a separate listing for its flagship Asian business, emboldened by a successful IPO from arch-rival and one-time takeover target AIA (1299.HK: ).

A 13 percent jump in AIA’s shares in the month since it listed in Hong Kong has highlighted buoyant investor demand for Asian life stocks.

Prudential, facing shareholder pressure to perform after a bungled attempt to buy AIA this year, could take the opportunity to float its Asian operation, bankers say.

An initial public offering of the Asian unit would boost Prudential’s shares by making explicit the value of a fast-growing subsidiary whose prospects are not currently recognized in the group’s stock price.

“Whilst they are continuing to deliver operationally, I think there is a general unhappiness out there that the share price does not have any reflection of look-through valuations elsewhere in the sector,” Berenberg Bank analyst Trevor Moss said.

“If ever there was a time for them to do something that might release some of that value, it would be in the next 12 months.”

Prudential, set to hold an operational update for investors on Wednesday, said it saw no need to change its structure.

“Our strong results show that our strategy and structure are delivering value to our shareholders,” a spokesman said.

TALKING POINT

Bankers said talk of a listing for the Asian business, long touted as a way of bridging the perceived shortfall in Prudential’s market value relative to the combined value of its units, has redoubled since AIA’s IPO.

“Every other bank has given a lot of thought to that. It is a five-year old topic,” said one banker who has worked on Asian insurance IPOs and takeovers.

Prudential Corporation Asia (PCA) is seen as the jewel in the 162-year old British insurer’s crown, generating almost half of group sales and still growing strongly thanks to its exposure to the dynamic economies of south-east Asia.

According to the banker, PCA would be worth as much as $20 billion, compared with the $13 billion implied by Prudential’s current share price, if it were to list on a similar multiple to the 1.6 times embedded value achieved by AIA.

Any consequent rise in Prudential’s share price would help soothe relations between the group and its investors, badly dented by the company’s overambitious $35.5 billion bid for AIA.

Prudential was forced to pull the takeover in June after shareholders balked at the price, leaving it to pay 377 million pounds ($586 million) in fees, and triggering calls for chief executive Tidjane Thiam and chairman Harvey McGrath to quit.

Unlocking the value of PCA could also help appease a persistent lobby of critics who have said Prudential is made up of fundamentally unconnected businesses in Asia, Britain and the United States, and would be worth more if broken up.

PANDORA’S BOX

However, bankers and analysts say the insurer may be reluctant to sell even a minority stake in its most promising asset at a time when its full potential may not have emerged.

There is also a danger that a successful offering of a stake in PCA could invite bids for the whole business, potentially hastening the break-up option which Prudential has resisted.

AIA, led since July by Mark Tucker, Thiam’s predecessor as chief executive of Prudential, was seen as one potential acquiror of PCA.

“It might ultimately destabilize the group because somebody could come along and bid for the whole lot,” said Investec analyst Kevin Ryan. “From a management perspective, it could be a little bit like opening a Pandora’s box.”

In the absence of an IPO, Prudential’s best hope for winning wider recognition for its Asian business could be to make sure it delivers a sustained run of bumper profits.

“Prudential’s thinking seems to be that by continuing to deliver very strong results from Asia, the stock will ultimately get re-rated,” the banker said.

(Editing by Dan Lalor)

($1 = 0.6431 pound)

UK’s Prudential could weigh IPO for Asia unit