IRB confirms R$1.2bn raise from primary follow-on offering

IRB Brasil Re has raised R$1.2bn ($228.9mn) from a primary follow-on offering of its common shares as the reinsurer seeks to plug a capital hole to comply with regulator Susep’s minimum capital requirements.

The reinsurer in its Q2 2022 results had revealed a R$613.8mn shortfall in its adjusted equity in relation to Brazilian regulator Susep’s minimum capital requirement. That meant the reinsurer had just 64 percent of the minimum capital required under Susep’s oversight.

In a filing issued after markets closed on Thursday, IRB said its board had approved the pricing of a primary follow-on offering of the reinsurer’s common shares with restricted placement efforts in Brazil.

The price per share was set at R$1 after the book-building process was completed, while the company’s board also approved an increase of the reinsurer’s capital stock of R$1.2bn divided into 1.2 billion newly issued common shares.

IRB’s shares had ended Thursday trading at R$1.40 each.

Once the follow-on offering has completed, the company’s capital stock will stand at just over R$5.45bn divided into close to 2.47 billion common shares and one preferred share.

As the reinsurer explained, under the regulations of the Comissão de Valores Mobiliários – Brazil’s Securities and Exchange Commission – the total number of 597,014,925 shares initially offered by IRB was increased by 101 percent, or 602,985,075 common shares. That takes the total number of newly issued common shares to 1.2 billion.

IRB said the shares are expected to begin trading on the São Paulo Stock Exchange on 5 September 2022. Settlement of the restricted offering is expected to take place on 6 September.

The restricted offering, IRB said, was directed to no more than 75 professional investors headquartered or resident in Brazil, and subscribed by no more than 50 professional investors.

Placement efforts were also made to qualified institutional buyers and elsewhere to institutional and other non-US investors.

Details of the share offering’s pricing comes after the Rio de Janeiro-headquartered reinsurer had in mid-August announced it was considering various options to bolster its capital structure that could include an equity fundraise.

That announcement was made shortly before IRB reported its Q2 2022 results, in which the reinsurer revealed it had suffered a deterioration in its risk-adjusted capitalisation during the period. As The Insurer reported at the time, drought losses within the reinsurer’s agriculture book had pushed it to an underwriting loss of R$661mn for the period.

The losses were so severe that IRB’s management confirmed the reinsurer had gone through the top of its dedicated retro protections for the peril.

On a call to discuss the second quarter results, IRB CEO Raphael Carvalho said the reinsurer had sent Susep a formal recovery plan, and that the business was considering three possibilities to increase its capital: a share offering, the sale of real estate assets and a possible loss portfolio transfer.

IRB has in recent days raised R$185.3mn after signing the final public deed for the sale of the office building in Rio de Janeiro where its headquarters are located and reaching an out-of-court settlement with the city’s CasaShopping enterprise while it also sold its stake in that mall.