Ireland’s FBD Could Sell as Much as $83M of Debt to Meet Solvency II Rules

FBD Holdings plc may seek to sell as much as 75 million euros ($83 million) of subordinated debt to ensure it meets new solvency rules, Darren McKinley, an analyst at Merrion Capital said.

Insurance company FBD may need a capital injection of as much as 100 million euros to meet Solvency II rules taking effect on Jan. 1, the Irish Farmers Journal reported earlier this month. The company could sell its 50 percent stake in a joint property venture to raise 48.5 million euros, the Journal reported.

“By going down this route the company would reduce the potential fund raising to between 50 million euros to 75 million euros,” said McKinley, who recommends investors avoid the stock for now. “Given the low interest rate environment, it makes sense to choose the option of a subordinated bond sale over an equity raise.”

Last month, Irish state-owned health insurer Vhi Insurance DAC said Warren Buffett’s Berkshire Hathaway Inc. granted it a subordinated loan.

FBD’s shares, which have dropped 39 percent this year, were unchanged at 7 euros as of 3:55 p.m. in Dublin, valuing it at 242.5 million euros. FBD is due to report first-half earnings on Aug. 24.

“FBD has brand value and leading market share. The problem now stems from overly generous dividends in the past,” said McKinley. “If FBD can kitchen sink surprises in this result, cut the dividend and give guidance on capital and how it will be funded, then FBD will be closer to a buy as it now trades below book value.”

FBD external spokesman Pat Walsh declined to comment, and pointed to a statement earlier this month that “plans are on course for FBD to continue to be in full compliance with all requirements by the due date.”