Why the IAG (ASX:IAG) share price is sinking lower today

The Insurance Australia Group Ltd (ASX:IAG) share price is sinking lower on Monday after completing its institutional placement…
The post Why the IAG (ASX:IAG) share price is sinking lower today appeared first on Motley Fool Australia. –

graph of paper plane trending down

The Insurance Australia Group Ltd (ASX: IAG) share price has been the worst performer on the S&P/ASX 200 Index (ASX: XJO) on Monday.

In early afternoon trade the insurance giant’s shares are down 5.5% to $5.15.

Why is the IAG share price sinking lower?

Investors have been selling the company’s shares this morning after they returned from a trading halt following the completion of an institutional placement.

Insurance Australia Group raised a total of $650 million through the issue of approximately 128.7 million new shares to institutional investors at a 7.5% discount of $5.05 per new share.

According to the release, the company received significant interest from both domestic and offshore institutional investors.

Management revealed that it was pleased with the strong support shown for the equity raising from its shareholders. It feels the success of the raise is an endorsement of its decisive action to maintain balance sheet strength. This, it feels, positions the company well to execute on its strategic plan.

The insurer will now push ahead with its non-underwritten share purchase plan (SPP), which is aiming to raise up to $100 million.

These funds will be raised at the lower of the placement price or a 2% discount to the five-day volume weighted average price of its shares up to and including the closing date of the SPP.

Why is Insurance Australia Group raising funds?

As mentioned above, the company launched the capital raising in order to strengthen its balance sheet.

This was necessary after courts ruled that insurance companies would have to pay out business interruption claims relating to the COVID-19 pandemic.

For Insurance Australia Group, this means an $865 million business interruption claims provision.

Based on its accounts at the end of October, this provision would reduce the company’s CET1 ratio to approximately 0.84 times the Prescribed Capital Amount (PCA). This would place it approximately $140 million below the lower end of its targeted benchmark range.

And while the company could still appeal the court ruling, management believes that maintaining its capital position above the upper end of its CET1 target range was the prudent thing to do.

The SPP is due to close on 18 December.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

See The 5 Stocks

*Returns as of June 30th

More reading

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Why the IAG (ASX:IAG) share price is sinking lower today appeared first on Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;

To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.

An active and funded account with a positive trading balance is required to continue to have access to the tools;

Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;

Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!