HSBC sells British life insurance arm as bank's boss ramps up cost-cutting
Policyholders with HSBC Life will be transferred over to Preston-based Chesnara.
Chesnara expects the deal to add more than 450,000 new policies and £4million in assets under administration.
The banking giant's new boss, Georges Elhedery, is on a mission to simply and streamline the business, offloading any operations which no longer fit its core focus.
HSBC is undergoing a radical revamp under Elhedery since he took the helm in September. The bank has cut jobs, combined units and shuttered divisions.
HSBC Life is a specialist life protection and investment bond provider, which had eligible own funds of £314million as at 31 December.
Chesnara said it expected to generate over £800million in additional lifetime cash flow from HSBC Life, with annual cash generation exceeding £140million in the first five years.
The firm said on Thursday it expects eligibility for FTSE 250 inclusion after boosting liquidity.
The deal will be funded from a combination of existing cash resources, the firm's revolving credit facility and a sale of new shares to existing shareholders.
Chesnara said it intended to raise gross proceeds of around £140million via a rights issue of 79.5million shares at 176p per share, with shareholders getting 10 new ordinary shares for every 19 shares they currently hold.
Chesnara shares closed at 293.5p on Wednesday and were little changed in early London trading.
The acquisition is expected to close early next year, subject to regulatory approvals.
Chesnara, which was formed in 2004 and has operations in the UK and Europe, reported assets under administration of £14billion as of 31 December.
Steve Murray, chief executive of Chesnara, said: 'The proposed acquisition of HSBC Life (UK) represents a material step up in scale for Chesnara Group.
'This highly accretive transaction will allow us to build on our strong, 20-year track record of uninterrupted dividend growth.'
In recent years, HSBC has sought to simplify its structure and concentrate on core banking activities, notably in Asia, where it continues to deploy significant capital.
In December, Canada Life announced it was transferring its bond business to Chesnara.
Chesnara shares were up 0.21 per cent or 0.62p to 294.12p on Thursday, having risen 18 per cent in the last year.
HSBC shares fell 0.3 per cent or 2.7p to 882.60p, having risen over 28 per cent in the last year.
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