Standing up for your rights
Cash-strapped insurers are rushing to replenish funds through rights issues and secondary offerings. Most can justify them on the basis of poor results, but isn’t one of them, Legal & General, being a little greedy?
Who wants to do a rights issue? Not many companies, one would assume. Rights issues are typically seen as a last resort of managements desperate to repair balance sheets or in need of funding for acquisitions. A rights issue - the issue of new shares to existing shareholders - can raise a large amount of capital and allow shareholders to maintain their existing proportion of holdings.
But regardless of the stigma generally attached to rights issues, several insurers are lined up to make them. Most are doing so from a defensive, or rescue, position where they have little choice since they need the capital to shore up balance sheets but UK insurer Legal&General has done so by choice to fund organic growth.