Prudential insurance raises £1 billion

The Prudential insurer is to release a rights issue in an effort to bolster its funds by £1 billion.

Seeking to back up its capital ahead of new EU funding requirements, the company will generate one new share for every six existing shares at a price of £3.08 - a third cheaper than existing shares.

Trading in the issue will begin on 11 November.

David Buik, an analyst at Cantor Index, was quoted by the Reuters news agency as warning "I think the Prudential rights issue will be read negatively".

Prudential chief executive Jonathan Bloomer added that "the rights issue is about raising capital to grow the UK business".

Prudential shares fell 8 per cent on the news, though it coincided with very positive results for the third quarter of 2004, with sales rising 16 per cent to £1.3 billion.

The EU Financial Groups Directive comes into effect on 1 January 2005, requiring insurers and other financial groups to boost their capital.