Prudential Plc, the British insurer buying American International Group Inc.’s main Asian unit, delayed the start of a US$21 billion ($29 billion) rights offer pending discussions with the U.K. regulator about its capital position.

“Prudential does not expect this to affect the overall timing for the completion of the transaction,” the London-based company said today in a statement. The talks with the Financial Services Authority relate to “the capital position of the enlarged group” after the takeover, Prudential said.

 

The insurer is betting the purchase of AIA Group, the biggest acquisition in its 162-year history, will provide long- term revenue growth in the world’s fastest growing region and offset weaker demand for life insurance in the U.S. and U.K. Chief Executive Officer Tidjane Thiam, who took over the role October, needs 75% of investors to approve the rights offer at a shareholder vote on May 27.

 

“It’s very unusual for the FSA to come into the frame at this stage in the deal,” said Paul Mumford, who helps manage 600 million pounds ($1.2 billion) at Cavendish Asset Management including Prudential shares. “It’s come out of the blue. Everyone was expecting the prospectus to come out this morning. It’s quite embarrassing for the company.”

 

Including fees to underwriters, the rights offering will surpass the 13.5 billion-pound ($28.3 billion) share sale by Lloyds Banking Group Plc in November. Credit Suisse AG, HSBC Holdings Plc and JPMorgan Cazenove Holdings are managing the deal, which is fully underwritten by 33 banks.

 

“We can only assume that the FSA wants the company to have more capital or a higher quality form of capital, but both would suggest a bigger rights issue than initially planned,” said Marcus Barnard, a London-based analyst at Oriel Securities Ltd. with a “sell” rating on the stock. “If the market sees this as a sign that the deal might not happen then perversely the shares could rise.”

 

Prudential rose 9.5 pence, or 1.7%, to 568 pence at 8:08 a.m. in London trading. The stock closed at 602.5 pence on Feb. 26, the last day before the fundraising was announced.