Cathay Financial Holdings to raise at least $1.4 billion

One of Taiwan’s leading financial services groups, Cathay Financial Holdings, announced last week that it would increase its issued shares by 1.5 billion shares. Fundraising should be completed by the end of this year.

The amount of funds to be raised is estimated at at least 45 billion yuan, with the issue price to be set between NT$26-40 per share.

Cathay Financial said in a filing with the Taiwan Stock Exchange that the capital increase is to strengthen the working capital and financial structure of the company and its subsidiaries, and repay borrowings and/or have the funding required for the long-term strategic development of the Group.

The holding company said that of the additional funds, it would inject NT$35bn in Cathay Life Insurance and NT$10bn in Cathay Property Insurance. Cathay Financial owns 100% of the insurers whose financial results have been hit by COVID-19 claims and rising interest rates.

Cathay Life Insurance
Cathay Financial announced on behalf of Cathay Life that the latter would make a private placement of up to 500m additional common shares so as to maintain the current shareholder structure. The additional shares are to be issued at a proposed price of NT$70 each to rake in proceeds of NT$35bn. Cathay Life's use of the funds raised in this private placement includes gearing up for  IFRS 17 and ICS in 2026, strengthening the capital structure and increasing its net worth.

The statement says that Cathay Life's equity-to-asset ratio would increase from approximately 2.63% as of 30 September to 3.11% after the capital increase.

Rising interest rates worldwide have led to declines in the prices of bonds, affecting the valuation of insurers' financial assets. Taiwan's Financial Supervisory Commission (FSC) requires life insurers to maintain an equity-to-asset ratio higher than 3%. However, because of interest hikes, several insurers have seen this ratio fall below the minimum requirement of 3%.
Cathay Century Insurance 

Cathay Financial also announced on behalf of Cathay Century Insurance that the latter would raise up to NT$10bn through a private  placement. The price for the private placement would be not less than Cathay Century's net worth per share. Cathay Century would use the funds raised to strengthen its capital structure.

Net worth

Cathay Financial says that due to interest rate hikes, the stock, debt and foreign exchange markets have all seen huge volatility. For life insurers that have vast financial assets, the gap in the maturity of financial assets and liabilities integration, when interest rates rose, the benefits generated by the liability side fail to appear, resulting in sharp fluctuations in net worth, which are not conducive to the fair expression of the insurers' operations. 

Since September, Cathay Life has conducted several internal discussions on the issue of financial asset reclassification. At the end of September, senior management decided to reclassify the insurer's financial assets with effect from 1 October. Under IFRS 9 rules, Cathay Life's adjusted net value will be increased by NT$242.6bn, representing a net value ratio of 5.78%.

Cathay Life is the second Taiwanese life insurer to announce a reclassification of financial assets, following the steps of Nan Shan Life Insurance.

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