QBE equity raising may sound start gun for financial services companies

The QBE shares were sold in the equity raising at $8.25 each, a 9.4 per cent discount to their last closing price Picture: Bloomberg

QBE’s $1.2bn-plus equity raising on Tuesday could mark the start of efforts by other companies in financial services to call on their investors for more funds, as they yield to the wishes of the Australian Prudential Regulatory Authority.

Some believe that the raise through JPMorgan and Goldman Sachs came after differing views between APRA and the company about what liquidity levels were appropriate in the COVID-19 crisis, with the spotlight on QBE’s reinsurance operations.

The raise was well covered despite it being the largest since the crisis began and with one of the smallest discounts.

This is even though some sidestepped the deal because they felt that reading the future was too difficult for a complex insurer like the $11.92bn QBE.

This month, QBE confirmed the final payment of its 2019 dividend at 27c a share as scheduled, but APRA warned that banks and insurers should consider suspending dividends until the fallout from COVID-19 recedes. If they proceeded, based on robust stress testing, the payments should be at a reduced level.

Banks, wealth managers and other insurers will now be assessing equity raising options, even though a move to tap the market may happen later down the track.

The QBE shares were sold at $8.25 each, a 9.4 per cent discount to their last closing price of $9.11. The shares traded at more than $15 this year before the coronavirus outbreak.

QBE had $3.1bn of debt at December with a debt-to-equity ratio of 38 per cent.

The institutional placement to raise $1.2bn is fully underwritten, and the non-underwritten share purchase plan will secure about $120m.

Meanwhile, the equity raising for funeral operator InvoCare through Morgan Stanley on Tuesday was increased to $200m, from $150m.

Shares were sold at $10.40 by way of an underwritten institutional placement worth $200m and up to $50m through a share purchase plan. The raise is at a 7.8 per cent discount to its last closing share price.