British insurer Prudential’s ambitious $US35.5 billion ($39.4 billion) play for AIG’s Asian life insurance unit has struck a snag after the UK Financial Services Authority (FSA) blocked its $US21 billion ($23.3 billion) rights issue on capital solvency grounds.

The FSA is concerned the enlarged group, set to become the largest foreign insurer in Asia, would fail capital solvency stress tests, and has requested Prudential prove its capital ratios stack up.

Prudential says it is working to convince the FSA of its capital strength, and has not amended its May 27 deadline by which shareholders must vote on the deal.

The acquisition of AIG’s Asian business unit hinges on a successful rights issue, which many investors were questioning before the FSA-imposed delay.

Reactions among shareholders to the FSA’s decision to block the capital-raising have ranged from “shambolic” to an “unmitigated disaster”.

Prudential is the UK’s largest insurer, with surplus capital of £3.4 billion ($5.68 billion).

Prudential claims the delay won’t affect the overall timing of the transaction which it has forecast to complete in the third quarter, subject to approval from regulators and shareholders.