UPDATE 3-Delta Lloyd concession fails to quell rights issue revolt

* Share issue size slashed to 650 mln euros from 1 bln euros

* Largest shareholder still opposes plan

* Delta Lloyd says Central Bank backs new plan

* Stage set for clash at March 16 shareholders meeting (Recasts with CEO interview, analyst comment, shareholder statement)

By Toby Sterling and Anthony Deutsch

AMSTERDAM, Feb 24 (Reuters) - Embattled Dutch insurer Delta Lloyd cut the size of a rights issue it says it needs to improve solvency by a third on Wednesday, but its largest investor said this was not enough.

Highfields Capital’s refusal to back the cash call is the latest setback for Delta Lloyd, which has lost 70 percent of its value over the past year as it struggles to adapt to Europe’s new Solvency II capital requirements.

It also sets the stage for a showdown with disgruntled shareholders at an extraordinary meeting on March 16.

Investors representing around 32 percent of shares told Reuters in January they would vote against the 1 billion euro cash call.

Most could not immediately be reached for reaction following Delta Lloyd’s announcement on Wednesday.

Highfields, with a 9.5 percent stake, said it still opposes the plan, despite Delta Lloyd reducing the size of the offer to 650 million euros ($716 million) from 1 billion.

“Nothing in today’s presentation changes Highfields’ intention to vote against the capital raise,” spokeswoman Andrea Calise said in a statement.

Delta Lloyd CEO Hans van der Noordaa told Reuters he was convinced the capital increase is needed and will win approval.

“Naturally we listen and talk to shareholders, but in the end we must find a balance between what’s good for our policy holders, what’s good for shareholders, and what the regulator thinks about it,” Van der Noordaa said.


Van der Noordaa said the Dutch regulator, the Netherlands’ Central Bank (DNB) supports the reduced issue amount.

But he cautioned that failure to pass the share issue would jeopardize an agreement with the regulator on the treatment of 520 million euros in tax assets.

The company’s relations with the regulator, reputed to be the toughest in Europe on Solvency II implementation, have been strained.

Over the past two years, Delta Lloyd’s CEO, CFO and chairman have all left amid clashes with the DNB which has been the quickest and toughest in Europe in implementing Solvency II.

Delta Lloyd said that the share issue, together with the sale of its stake in Dutch bank Van Lanschot would be enough to restore solvency from 131 percent at year-end to above 170 percent.

Its shares initially rallied more than 10 percent, but lost earlier gains to close up 4.5 percent.

The share issue is “definitely good news,” said JPMorgan analyst Ashik Musaddi, “but I’m still not comfortable with their capital position.”