Ageas Climbs as BNP Offer for CASHES Cuts Risks, Volatility
Ageas, the majority owner of Belgium’s biggest life insurer, rose to a six-month high in Brussels trading after reaching an agreement with BNP Paribas SA (BNP) to settle some remaining liabilities from its Fortis legacy.
Ageas surged 16 cents, or 11 percent, to 1.61 euros at the 5:40 p.m. close of trading on Euronext Brussels, the highest close since July 22. The insurer expects net cash proceeds of at least 475 million euros ($625 million) and will see a reduction in its credit risk on Fortis Bank SA/NV (FBAVP) of as much as 4 billion euros, the company, based in Brussels and Utrecht, said today in a statement.
The settlement involves BNP Paribas making an offer, at a discount to face value, for 3 billion euros of floating-rate, undated notes that can be handed over for Ageas (AGS) shares. These so-called CASHES were originally sold by Fortis Bank, which will also reimburse 1 billion euros of perpetual subordinated notes, most of which are held by Ageas, because these hybrid bonds will lose their equity status under Basel III bank capital rules.
“The transaction is more relevant to Ageas than it is to BNP Paribas,” Albert Ploegh and Tom van Kempen, analysts at ING Groep NV in Amsterdam, wrote in an investor note. “This makes Ageas more investable.”
If the offer is successful, it will make Ageas’s earnings less volatile because changes in the market value of both notes are currently reflected in the insurer’s quarterly accounts.
Tender Offer
Ageas, which was created out of the insurance remains of Fortis, pays quarterly interest to Fortis Bank to compensate its former banking unit for the decline in the value of Ageas shares the bank owns to reimburse the undated convertible bonds it sold in November 2007. Fortis Bank is now controlled by BNP Paribas, which bought a 75 percent stake from the Belgian state in May 2009.
Under the terms of the agreement, BNP Paribas began a tender offer today for the undated convertible notes and will purchase the bonds for 45 percent to 47.5 percent of face value, on condition that holders of at least 50 percent of the outstanding notes tender their securities.
BNP Paribas will then convert the notes it bought into Ageas shares, diluting the insurer’s per-share earnings by as much as 5 percent. The Paris-based bank agreed not to sell the shares for at least six months, and will receive a compensation payment from Ageas. The insurer expects to pay 200 million euros to 475 million euros and said it will make an annual payment should BNP Paribas fail to buy all of the outstanding notes.
Ageas will receive 953 million euros from Fortis Bank as the Belgian banking unit of BNP Paribas reimburses the floating- rate perpetual subordinated notes it sold in 2001. Ageas bought 95 percent of the bonds in September after Fortis Bank decided not to redeem the notes on their first call date. The insurer spent 953 million euros in cash because it didn’t receive shareholder backing at its annual meetings to issue shares.
The reimbursement will enable Ageas to reverse earlier writedowns on the notes, boosting first-quarter pretax earnings by 159 million euros.
To contact the reporter on this story: John Martens in Brussels at jmartens1@bloomberg.net
To contact the editor responsible for this story: Jerrold Colten at jcolten@bloomberg.net
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