IRB Brasil Re Weighs New Share Offering After Warnings About Capital Adequacy

August 16, 2022

IRB Brasil Resseguros SA on Monday said it is considering a new capital increase to reinforce its financial structure, after market participants raised multiple alerts on the Brazilian reinsurer‘s capital sufficiency.

The move would most likely be a fresh follow-on share offering, the company said in a securities filing, adding that it has not yet reached a final decision or approved the potential funding or its terms.

Shares in IRB fell 9.5% to 2.09 reais after the announcement, making it the worst performer on Brazil’s Bovespa stock index .BVSP, which dropped 1.4%.

Local financial website Brazil Journal reported on Friday, citing sources, that the reinsurer was expected to announce a new offering to raise up to 1.5 billion reais ($292 million) at around 1 real per stock.

That would represent a 56.7% discount over Friday’s closing price of 2.31 reais per share.

Recently, IRB’s successive monthly losses led analysts to raise alerts on its capital sufficiency, with Citi and Genial Investimentos saying the company would likely need a capital increase.

The firm is set to report its second-quarter results later on Monday. Preliminary data released last month showed it had posted a net loss of 285.3 million reais in the first five months of the year, versus a net profit of 9.4 million reais in the same period a year earlier.

IRB noted the potential capital raising would also depend on favorable market conditions.

Shares in the company are down roughly 47% so far this year, whereas the Bovespa index is up 6%.

IRB entered a downward spiral in 2020, when Rio de Janeiro’s Squadra Investimentos uncovered accounting irregularities at the company, forcing a management overhaul.

Earlier in 2022, a former senior executive was charged with fraudulently planting a false story that Warren Buffett’s Berkshire Hathaway Inc BRKa.N had made a significant investment in the company.

($1 = 5.1312 reais)

(Reporting by Gabriel Araujo; editing by Steven Grattan, Jason Neely and Paul Simao)

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