Local funds to partner foreign entities to acquire foreign insurers’ stakes

BNM has ruled that foreign insurers can only hold not more than 70% interest in their local operations

By NG MIN SHEN / Pic By BLOOMBERG

Local fund managers will likely partner foreign institutions to acquire foreign insurers’ stakes worth billions of ringgit as these insurance firms pare down their stake to conform to the monetary authority rulings.

The central bank has ruled that foreign insurers can only hold not more than 70% interest in their operation in Malaysia, forcing these insurance giants to seek buyers for their 30% stakes.

Presently, there are 11 locally-incorporated conventional insurers that are fully owned by foreign firms and the 30% stakes would be worth billions of ringgit.

MIDF Amanah Investment Bank Bhd analyst Danial Razak said institutional funds like Retirement Fund Inc (KWAP) has already expressed its interest to acquire stakes from Great Eastern Holdings Ltd, Prudential plc and AIA Group Ltd.

“Given the relatively big fraction of ownership being offered, the acquisition is expected to be completed via partnership with other institutional investors, considering their ability to purchase such sizeable assets,” he told The Malaysian Reserve.

Besides the sizeable size being put in the market, insurance businesses are perceived to have a relatively higher risk and will require stricter assessment, Danial said.

High-net worth individuals are also expected to put their bets on these stakes.

KWAP, the country’s second-largest pension fund, was reported to be interested in stakes in Great Eastern Life Assurance (M) Bhd, Prudential Assurance Malaysia Bhd and AIA Bhd, may work with other institutional investors. Other potential buyers include Malaysia’s largest pension fund, the Employees Provident Fund and state-owned asset manager Permodalan Nasional Bhd.

Malaysia’s foreign ownership rules were liberalised in 2009 to allow foreign insurance firms and takaful operators to increase their stakes from 49% to 70%. Bank Negara Malaysia (BNM) had then decreed that while foreign ownership of local insurance firms must be capped at 70%, a higher limit would be considered on a case-by-case basis for players that can facilitate consolidation and rationalisation of the domestic insurance landscape.

In June this year, the central bank reportedly sent letters to foreign insurers with wholly owned local units, requesting them to cut their stakes in compliance with the foreign ownership regulation. The deadline to comply is June 2018.

“Foreign insurers should be able to meet the deadline as the paring down appears to be done via strategic stake sales,” Danial said.

Singapore-based Great Eastern has already engaged at least one local bank to explore a stake sale in its Malaysian subsidiary, which could fetch up to US$1 billion (RM4.26 billion). A 30% stake sale in Prudential Malaysia, which remains undecided on the structure of its sale, could also raise a similar amount.

Japan-based Tokio Marine Holdings Inc’s Tokio Marine Insurans (M) Bhd is said to be considering an initial public offering (IPO) in Malaysia that could raise some US$100 million.

US-listed property and casualty insurer Chubb Ltd is also looking at a 30% stake sale or a domestic IPO for Chubb Insurance Malaysia Bhd, with the stake sale said to reap at least RM200 million.

Danial said some deals may be finalised by year-end, but he expects some of the sales would spill over into the first quarter of 2018 due to the complexity of the risk assessment and negotiations.

“Foreign insurers are unlikely to opt for IPOs as they would have to go through a lengthy process that could take more time than the stipulated time-frame,” he said.

He added that in the case of Tokio Marine Insurans, a listing on Bursa Malaysia — if any — would probably be completed later than June 2018.

“The listing of Tokio Marine Insurans will spur more public and investor interest in insurance stocks,” he said.

Presently, only Allianz SE’s Allianz Malaysia Bhd and the Manufacturers Life Insurance Co’s (Manulife Financial Corp) Manulife Holdings Bhd are traded on the local bourse.