Tower to raise $47.2 million

TOWER will raise $47.2 million at a discount, of which less than half will go towards buying controversial minnow Youi NZ and the rest will bolster the insurer’s balance sheet to meet new licencing conditions.

The Auckland insurer will sell 84.3 million shares at 56 cents apiece in a oneforfour pro rata renounceable entitlement offer. That is a 23% discount to the theoretical exrights price and a 27% discount to the 77c price the shares closed at yesterday.

The shares fell 6.5% on the open to 72c.

Tower will use $13 million to buy Youi’s 34,000 policies and another $5 million will support the newly acquired policies.

The bulk of the funds will strengthen Tower’s balance sheet, replacing a disputed $53.1 million receivable from the Earthquake Commission, which will no longer qualify as solvency capital from October 31. The insurer expects the dispute will end up in court.

Tower said it consulted the Reserve Bank on its capital needs for the Youi acquisition and its existing solvency capital. The insurer said likely litigation and delays in collecting the funds meant it was appropriate to remove the receivable from solvency calculations.

‘‘We continue to be confident in the recovery of this receivable and, while we have entered into an alternative dispute resolution process, we are firmly committed to collection of the EQC receivable to the maximum extent possible,’’ chief executive Richard Harding said in a statement.

Tower raised $70.8 million in November 2017 in a oneforone entitlement offer to bolster its balance sheet in the face of escalating costs from the 2010 and 2011 series of Canterbury earthquakes. At the time, the shares were trading at 76c and the new shares were sold at 42c.

Those funds were used to repay a $30 million loan to Bank of New Zealand and lift the insurer’s surplus margin above the Reserve Bank’s solvency capital requirements.

The insurer yesterday said its attempts to close Canterbury earthquake claims were being hampered by ‘‘unacceptable and ongoing receipt of overcap claims’’ from EQC ‘‘as a result of past performance, poor workmanship and faulty repairs’’. It received 45 new claims in August, and another 15 were reopened or new and undercap. It closed 21 claims in the month, leaving it with 116 open properties at August 31.

Tower said the Youi acquisition would add $24 million of gross written premiums, of which 64% will come from motor policies and 23% from house policies.

Youi was fined $320,000 in 2016 after pleading guilty to breaching the Fair Trading Act. It was also fined $100,000 by the Insurance Council.

Tower had 487,000 policies as at March 31, which generated $141.6 million of gross written premiums in the first half.

Tower said it expected underlying net profit of $28 million in the year ending September 30. Its previous guidance was for annual earnings to exceed $26 million.

Goldman Sachs New Zealand is underwriting the offer, which opens on October 3. — BusinessDesk