LONDON — Prudential Plc., the British insurer aiming to buy the Asian life insurance business of American International Group, postponed the start of its rights issue Wednesday because Britain’s financial regulator needs more time to test the capital ratios of the combined group.
Prudential said it still expects to stick to the original timing of the record $21 billion issue, which it plans to complete in the third quarter. The insurer needs to raise funds to finance the $35.5 billion takeover of the AIA Group, which would be the biggest transaction ever for the 162-year-old company. Prudential shares fell 1.3 percent in London on Wednesday.
Prudential had intended to publish the prospectus of the issue and meet with investors Wednesday ahead of a shareholder vote on the share sale this month. But it said it was delaying the release until it could resolve talks with the Financial Services Authority, the British financial regulator, about the combined company’s capital position. It also postponed releasing its quarterly report until the conclusion of the discussions.
“Up until 7 o’clock this morning, people were expecting the rights news to hit the market,” said Paul Mumford, a fund manager at Cavendish Asset Management, which holds about £2.5 million, or $3.8 million, in Prudential shares.
“Clearly there’s some sort of formula that needs to be satisfied,” Mr. Mumford added.
Prudential said that the talks revolved around the “capital position” of the combined company under an E.U. rule requiring a certain solvency ratio for insurance companies, and preventing them from using the same capital “more than once to cover separate solvency margin requirements.”
The F.S.A. called the company Tuesday evening to say that there are still some unanswered questions with regards to the capital strength of the combined group and that it needs to run some more stress tests, said two people with direct knowledge of the conversation, who declined to be named before the rights issue is completed. Prudential remains in discussion with the F.S.A. and might publish the prospectus next week, they said.
The delay followed days of turmoil in European equity and debt markets because of concern about Greek sovereign debt and whether the crisis could spread to other European economies cash advance payday loan. It also came a day before a general election in Britain, whose outcome could affect the future of the F.S.A., which has admitted to failures leading up to the global financial crisis. The Conservative party, which has been leading in the polls, plans to move most of the F.S.A.’s responsibilities to the Bank of England. An F.S.A. spokeswoman declined to comment on Prudential’s announcement Wednesday.
Last month, Prudential applied for a dual primary listing in Hong Kong, which was set to occur May 11 alongside an additional listing in Singapore. The combined group would get about 60 percent of its business from Asia but agreed to be still regulated in Britain.
“We are entirely committed to the transaction and remain on track to complete within the timing set out on 1 March,” Hugh McGrath, chairman for Prudential, said in a statement.
As it moves to merge with its largest competitor in Asia, Prudential is in the process of securing the approval of multiple regulatory agencies. Reuters reported that the company had won the support of the South Korean trade authority last week, citing unidentified sources in the agency.
The talks with the F.S.A. are not the only complications that have arisen from Prudential’s plan. The Financial Times and other publications have reported that A.I.A. employees, wary of integration with a corporation that was for years a bitter rival and fearing job losses, have been leaving the company.
“The whole thing’s very unusual,” Mr. Mumford said. “It underlines the criticisms people have been making: that it’s rather large to digest and relatively expensive.”
A.I.G. has been selling off units piecemeal in an attempt to pay off at least part of the $182 billion it received in bailout funds from the U.S. government. It was considering an initial public offering for A.I.A. before agreeing to the deal with Prudential.
A.I.G. did not have any immediate comment Wednesday.
