In order to reap the benefits of the current low interest
rates, Manufacturers Life Insurance Company - a subsidiary of
Manulife Financial Corp.
), proposed to issue subordinated debentures worth $456.2 (C$500)
million. The debentures, scheduled to mature on Feb 21, 2014,
will bear a fixed/floating interest of 2.811%.
For the first five years, the debenture will carry interest
at a fixed rate of 2.811% and then at a rate of 0.80% over the
three-month Canadian Dealer Offered Rate (CDOR). Manulife
intends to deploy the net proceeds for general corporate
In terms of capital position, Manulife ended the year with a
capital ratio of 248%, reflecting a 37-point increase over the
prior year. Leverage trended toward the long-term target of
25%. Total long-term debt at the company was $4464 million
(C$4775 million), down from $5061 million (C$5046 million) as
on Dec 31, 2012.
During 2013, Manulife's interest expense of $996 (C$1045)
million was higher than $942 (C$934) million recorded in the
prior year. We expect the interest burden to increase further
with the new issuance. Nonetheless, it is a prudent decision to
capitalize on the prevailing low interest rate environment. In
addition, its strong operational performance supports it well
to service debt uninterruptedly, retaining
The company is expected to come out with more debt issue
since it has more than C$3.0 billion of refinancing
requirements over the next one and a half years.
Besides reducing interest expense by issuing debt in this
low interest rate environment, Manulife has achieved a great
deal during the year in reducing potential equity markets and
interest rates risk exposures, while also minimizing existing
risks. The company has also made significant progress in
diversifying its businesses, achieving growth in targeted areas
and cultivating new revenue streams.
Manulife retains a Zacks Rank #3 (Hold). Other better-ranked
life insurers like
Lincoln National Corp.
Protective Life Corp.
), all with a Zacks Rank #2 (Buy), are worth considering.
LINCOLN NATL-IN (LNC): Free Stock Analysis
MANULIFE FINL (MFC): Free Stock Analysis
PROTECTIVE LIFE (PL): Free Stock Analysis
PRIMERICA INC (PRI): Free Stock Analysis
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