KUALA LUMPUR: Allianz Malaysia Bhd (AMB) has proposed a renounceable rights issue of new irredeemable convertible preference shares (ICPS) of RM1 each to raise gross proceeds of about RM611 million that will be used to repay a loan, to increase the capital base of its subsidiaries and for the group’s working capital.

In a filing to Bursa Malaysia Securities yesterday, AMB said the proceeds would be used to repay the credit facility amounting to RM490 million extended by Allianz SE for the acquisition of Commerce Assurance Bhd, which is now known as Bright Mission Bhd. The acquisition was completed in August 2007.

It said the capital base of Allianz General Insurance Company (Malaysia) Bhd and Allianz Life Insurance Malaysia Bhd would be increased to them to meet their respective capital requirements under the risk-based capital framework for insurers issued by Bank Negara Malaysia.

AMB said the basis of the rights issue had not been fixed at this juncture to accord greater flexibility to its board in respect of pricing of the new ICPS.

The company said it had procured from Allianz SE, an irrevocable written undertaking to subscribe for its entitlement to the ICPS. It also intends to procure a further irrevocable undertaking from it to subscribe for all ICPS not subscribed by any other shareholders.

It said Allianz SE had undertaken that it would not convert any  ICPS into its shares if the conversion would result in it holding more than its existing shareholding. The ICPS may be converted at any time on a date falling 12 months after the quotation.

AMB also said the listing of the new ICPS would only require the securities to be held by at least 100 holders holding not less than one board lot compared to the listing of new shares that would require at least 25% of the total number of shares for which listing was sought to be in the hands of public shareholders.

Based on an issue price of RM3.20 per new ICPS, which represents a 35.7% discount to the three-month volume weighted average price of its shares as at March 31, 2010 and in order to raise the intended gross proceeds, the issue size will be 190.94 million ICPS on the basis of 124 ICPS for every 100 shares held.

AMB said any dividend for the new ICPS holders would be a non-cumulative preferential dividend, in priority over all AMB shares, where the dividend rate was equivalent to 1.2 times of the dividend rate of the AMB shares declared. RHB Investment Bank Bhd has been appointed as the adviser for the proposal.

AMB expects the exercise to be completed in the third quarter of the year. AMB closed 23 sen higher yesterday at RM5.56, with only 200 shares traded.

This article appeared in The Edge Financial Daily, April 27, 2010.