Tower shares touch record low
Tower shares traded at a record low yesterday as investors weigh up whether the $70.8 million of new capital they are being asked for will provide enough of a buffer against lingering Canterbury earthquake claims that have repeatedly surprised the insurer.
The stock fell as low as 64c, the lowest since Tower listed in 1999, eventually closing down 6c at 70c, after the insurer announced plans to sell shares at 42c apiece in a fully underwritten one-for-one prorata renounceable entitlement offer.
The funds raised will let Tower repay a $30m loan from Bank of New Zealand and lift its surplus margin above the regulatory solvency capital.
Chief executive Richard Harding said the capital raise would let Tower cope with a worst-case scenario, giving it room to meet any new unexpected escalation in claims from the Canterbury earthquakes while giving it enough scope to invest in the business.
“The capital raise really is to enable us to put to bed the Canterbury legacy,” Harding said. “It’s there to provide comfort to both shareholder and regulators and say if we have any potential shock coming out of Canterbury in the future, it’s not going to derail our plans for investing in the business.”
Tower has had to boost its provisioning for the 2010 and 2011 Canterbury earthquakes as the level of claims exceeding the Earthquake Commission’s cap came in at the same time as escalating construction costs. It had planned to carve out the claims into a separate entity last year to free up the underlying business, but instead attracted two suitors — Canada’s Fairfax Financial Holdings and Suncorp Group’s Vero Insurance.
The board sided with the Vero offer of $1.40 a share, but the deal was rejected by the Commerce Commission over fears it would stifle competition in the market.