February 15, 2016 / 7:01 AM / 4 years ago

RPT-Delta Lloyd faces revolt on rights issue, risks regulatory clash

* 32 pct of shareholders oppose 1 bln euro rights issue -poll

* Insurer says it needs money to meet Solvency II requirement

* Confrontation follows damaging clash with regulator

* Compromise smaller issue seen as possible, but unlikely

By Anthony Deutsch and Toby Sterling

AMSTERDAM, Feb 14 (Reuters) - Delta Lloyd is on a collision course with a large bloc of shareholders who oppose the Dutch insurer’s planned 1 billion euro ($1.1 billion) share issue to shore up its capital base.

Investors representing roughly 32 percent of Delta Lloyd shares plan to oppose the cash call at a vote on March 16, shareholders told Reuters.

Delta Lloyd requires a simple majority for its plan to be approved, although it then needs shareholders to participate in the rights issue, which it says is needed to meet its regulatory capital requirements under Europe’s new Solvency II rules.

If it fails to get shareholder backing, it would have to find other ways of satisfying the Dutch central bank (DNB) and ratings agency S&P which has warned it could downgrade the insurer by up to two notches if the share issue does not happen.

That would present a test case for European insurers tackling the demands of Solvency II, as the central bank could force Delta Lloyd to withhold dividends to shareholders.

Some major investors are sceptical about entrusting fresh money to a management team that has yet to win their confidence after a turbulent couple of years.

Among Delta Lloyd’s top 10 investors, people familiar with the voting positions said Fir Tree Partners, Fubon Financial Holding Co., Greenlight Capital, Highfields Capital Management LP and investor John de Mol all oppose the raise.

The positions of Norges Bank Investment Management, Thomson, Siegel & Walmsley LLC, Marshall Wace LLP and UBS Global Asset Management were unknown.

But Taiwan’s Fubon Financial Holding, which has a 5 percent stake, told Reuters it would vote “no”.

Analysts and investors said a compromise, involving a smaller capital hike, could yet materialise.

“Management teams usually don’t want to be embarrassed, so it’s rare for them to proceed with a vote that most shareholders appear to oppose. To date this management team has been the exception,” said one investor, who asked not to be named.

Delta Lloyd said in an emailed reaction that the share issue is “critical” for it to boost its Solvency II capital ratio and it expects the plan to win enough votes to pass, while the DNB declined to comment.

Delta Lloyd has already raised capital in the past year, issuing 338 million euros of new shares in March 2015 to prepare for the change. It then surprised markets in August by saying its capital ratio was still only 136 percent, below a target range of 140 to 180 percent.

Shares in Delta Lloyd have fallen by 77 percent in 12 months, with the stock hitting an all-time low below 4 euros ($4.54) on Thursday as investors continued to fret over two unresolved issues linked to Solvency II.

The first is the treatment of tax assets and the second is the interest rate insurers use to discount the size of liabilities far into the future. For Delta Lloyd, each has the potential to knock 30 percent off its solvency ratio.

CRITICAL STEP

The cash call now represents a doubling of shares outstanding in Delta Lloyd and is well above its market capitalisation of 860 million euros.

Analysts estimate the company needs to raise a minimum of 500 million euros of new capital. In August Delta Lloyd said it didn’t need to issue shares — but in November it reversed course and unveiled plans for the 1 billion euro rights issue.

“We believe raising additional equity capital now.. .is a critical step to reposition Delta Lloyd to deliver its strategy under the new Solvency II regime for the benefit of its shareholders,” the company said in a statement to Reuters.

Delta Lloyd said it has considered and rejected other options, such as gradually accruing capital or selling off higher-risk assets. (Editing by Alexander Smith)

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