IAG is considering raising emergency cash after it requested a trading halt to examine the financial impacts of the judgement handed down this week by the New South Wales (NSW) Court of Appeal concerning the COVID-19 business interruption (BI) test case.
The NSW Court of Appeal rejected the insurance sector's argument that policies should not cover COVID-19 pandemic-related losses, which could leave many insurers like IAG to pay out for thousands of pandemic-related BI claims.
Citi analyst Nigel Pittaway said IAG is the most exposed to the financial impacts of the ruling compared to other major insurers. In August, IAG put away $100 million to pay for unforeseen pandemic-related costs. However, Pittaway said it would not be enough to pay out the pandemic-related BI claims.
“We see risk [IAG is] provisioning ... will now prove inadequate. At face value, its share price is likely to fall on this news unless IAG provides offsetting clarification,” Pittaway said, as reported by the Australian Financial Review (AFR).
According to the AFR, IAG's trading halt would last until Monday, November 23 at the latest. The insurer has called investment bank Goldman Sachs as it considers a capital raising to shore up its balance sheet.
Fund manager sources told the AFR that Goldman Sachs is keen on giving advice and would turn to the US investment bank to handle the capital raising if necessary. It has also started talking to several investors about a $500 million deal to determine what price the market would be willing to pay for new shares under various scenarios.
