QBE unveils $1.3bn raising as key index exits bear market

QBE has kicked off a fresh round of raisings, moving with ‘good timing’ as the sharemarket ended a brief bear market.

QBE chief executive Pat Regan. Picture: Britta Campion

QBE has kicked off a fresh round of raisings as the sharemarket ended one of its shortest bear markets in history, reversing from bear to bull in the space of just 14 trading days.

QBE will raise $US875m ($1.37bn), mostly through an underwritten institutional placement, in a move designed to take it to “an extremely strong capital position”.

The raising came as a surprise to analysts who said the company’s capital position was already strong.

“I’m surprised they went to raise capital ... I guess it was a pre-emptive strike. But at the end of the day, if you’re the prime mover then you get the benefit of that,” Bell Potter analyst TS Lim told The Australian.

“Timing-wise it’s a good time to raise capital,” he added, noting the recent boost in the local sharemarket.

The raising includes a fully underwritten $US750m institutional placement at $8.25 a share, a 9.4 per cent discount to Thursday’s closing price of $9.11. It will also launch a $US75m retail share purchase plan.

“We’re being cautious ... there are quite perceivable, much worse scenarios that could play out (than our base case), and we just want to make sure that if that does happen, we’re not scrambling at that point in time; that we’re already starting from a strong position so we can withstand any of those scenarios,” Mr Regan told The Australian.

The raising is part of QBE’s plan to bolster its capital, reduce gearing and improve earnings resilience through the crisis. The result will see it positioned “to navigate a broad range of severe economic scenarios”.

As part of the plan, the insurer has also de-risked its investment book, exiting all equities as well as emerging market and high yield debt.

“They probably think that volatility is still out there, and the last thing they’ll want is to have another writedown,” Mr Lim said.

QBE also revealed trading conditions across the group strengthened during the first quarter, with strong premium rate momentum across all divisions.

“We’re not seeing the same kind of impacts to our revenues that a lot of other sectors are, so right now, we’re not seeing acute impacts in either our revenue levels or claims costs,” Mr Regan said, with revenue falls for 2020 expected to be “relatively modest”.

Group-wide premium rate increases averaged 8 per cent in the quarter, up from 4 per cent in the prior corresponding period.

But he conceded premium rate rises would be difficult to predict in the months ahead, noting the challenge of raising premiums in the current environment. The majority of QBE’s premium rate rises in the first three months of the year were heavily skewed to the first part of the quarter, particularly in Australia, he said.

QBE’s raising follows similar moves by other companies seeking extra funds in recent weeks, including Cochlear, Webjet, Flight Centre and Reece.

In a sign of the big sharemarket moves in recent weeks, Flight Centre launched its raising on April 6 after suspending its shares for more than two weeks, with the offer priced at $7.20 a share, a 27 per cent discount to its last close of $9.91. Its shares ended Tuesday’s trade at $13.36.

Invocare, meanwhile, launched its own raising on Tuesday, tapping the market for $150m in a bid to protect against the impact of the government-imposed restrictions on funerals that have hit the business.

The placement at $10.40 per new share represents a 7.8 per cent discount to the April 9 closing price of $11.28 and will see more than 14 million new shares being issued.

Invocare will also offer a non-underwritten share purchase plan to retail shareholders, up to $50m.

The latest round of raisings come as the local sharemarket roared into a bull market, rising more than 20 per cent from its recent lows.

The benchmark S&P/ASX 200 gained 100.8 points or 1.9 per cent to 5488.1 on Tuesday, its highest point in close to five weeks.

The index is now up 20.7 per cent from its March 23 trough of 4546 points, ending the recent bear market and starting a new bull market.

The index also took just 14 trading days to exit the bear market, one of the fastest ever recoveries from a bear market low.