Australia's Suncorp to Raise $577 Million, CEO to Quit

Australian insurance and banking group Suncorp Metway plans to raise about $900 million ($577 million) from selling new shares, partly to cover a sharp rise in bad debt charges, and said its chief executive is stepping down.

Suncorp, which dumped plans to sell its banking business last year, also warned its first-half profit would fall at least 30 percent, said it would cut its dividend, and forecast flat lending growth for the year to June.

The group's lower credit rating compared to Australia's top four banks has made it difficult to access funding markets and analysts have raised questions about its business model.

"In Suncorp's case the bank-insurance model hasn't worked, so to me it makes sense for them to structurally separate each," said Paul Xiradis, chief executive officer of funds manager Ausbil Dexia, which owns Suncorp shares.

Suncorp, Australia's No. 2 car and home insurer, said its  profit after tax for the first-half ended in December would be in the range of A$250-A$270 million.

It plans to sell the new shares at A$4.50 each, a steep 37 percent discount to its last traded price. Trade in the stock was halted on Thursday pending the equity raising.

"We arrived at the decision after much debate and discussion, convinced that it was appropriate in the current economic circumstances," Chairman John Story said in a statement.

Chief Executive John Mulcahy, who led the group's A$7.9 billion takeover of general insurer Promina two years ago, will step down after six years at the jhelm, but will help in the leadership transition.

Three of the top four Australian banks raised equity last year in the face of higher bad debt charges due to several high profile corporate failures.

Analysts are bracing for more writedowns and dividend cuts from Australian companies on growing worries the economy will slip into recession.

Share Sale Flurry
     
Suncorp's equity raising comes on the heels of shares sales by Australia's top airline, Qantas Airways, which raised A$500 million, and property developer Lend Lease, which raised A$303 million.

Both had relatively strong balance sheets and were not expected to tap investors for funds, although they are in sectors among the worst affected by the global economic slump.

Suncorp said the sharp increase in bad debts on its books came largely on loans to the property sector.

Lend Lease's outgoing chief executive Greg Clarke defended the timing of the equity raising and the company's conservative track record, in contrast to other property groups, like GPT and Centro.

"The guys that were meteorites two years ago have crashed and burned," Clarke told analysts and reporters at a briefing.

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"We have always run this business with a prudent and bearish outlook because bad things happen in property. We have no idea how long this down cycle will last."

Lend Lease shares plunged to their lowest level in nearly 20 years after the share placement, and last traded down 18 percent at A$5.57, well below the A$6.05 placement price on doubts the company would meet its full year profit forecast.

Qantas slid to a 12-year low, last trading down 17 percent at A$1.895, just above the placement price.

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