BNM’s June deadline for foreign insurers to be extended?

Foreign insurers with fully owned local subsidiaries have until June 2018 to reduce their stakes in the local units to 70%, or less, as required by BNM

By NG MIN SHEN / Pic By ISMAIL CHE RUS & BLOOMBERG

WITH less than three months to go for foreign insurers in Malaysia to comply with the central bank’s foreign shareholding rule, the possibility of a time extension looms large as there appears to be no sign of a firm deal yet on the part of any foreign player.

Foreign insurers with fully owned local subsidiaries have until June 2018 to reduce their stakes in the local units to 70%, or less, as required by Bank Negara Malaysia (BNM).

According to BNM’s website, there are currently 11 locally-incorporated conventional insurers and nine locally- integrated life insurers in the country that are fully owned by foreign firms.

Some are said to be in talks to sell their stakes to local funds, while others are considering public listing on Malaysia’s stock exchange.

MIDF Amanah Investment Bank Bhd analyst Danial Razak said the likelihood of foreign insurers adhering to the foreign ownership rule by mid-year hinges on the divestment route selected by the said parties.

“At this stage, the initial public offering (IPO) route is not viable based on the timeline set by BNM, as typically, an IPO will have to go through a lengthy process that would potentially take more time than the stipulated timeframe.

“A stake sale is the most suitable route, if foreign insurers are to comply with the current deadline.

“We will not be surprised if there is an extension to the deadline, but this depends on how far negotiations have proceeded,” he told The Malaysian Reserve (TMR).

Separately, an investment bankbacked expert said a mismatch in valuation pricing could be a possible reason for the delay in divestment.

“There is pressure on the insurers, but at the same time, deals like these don’t come every day, so to the pension funds, this is quite attractive,” he told TMR under the condition of anonymity.

While the buyers could be using time as a negotiation tactic, the analyst said BNM “will not likely be so rigid”, should the insurers appeal for more time.

“With demonstrable proof that the insurers are in active discussion with potential buyers, there is a distinct possibility of the central bank extending the deadline. It’s unlikely that the insurers can meet the deadline,” he said.

Areca Capital Sdn Bhd ED and CEO Danny Wong Teck Meng concurred and said, while buyers have the advantage of time, the insurers also have the option of undertaking an IPO instead of selling a major stake.

“The insurers can seek an extension, that’s nothing new in the market. As long as they show that they’re already working on it,” he told TMR.

Malaysia’s foreign-ownership rules were liberalised in 2009, allowing foreign equity participation in insurance firms and takaful operators to increase from 49% to 70%.

At the time, the central bank 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.

Last month, BNM called on insurance companies owned by foreign shareholders to fulfil their commitment as promised when applying for a licence to operate in Malaysia.

Without this commitment, we would not give them the licence in the first place, says Muhammad

“Without this commitment, we would not give them the licence in the first place. So, after so many years of ample time, we’re asking them to honour their word,” BNM governor Tan Sri Muhammad Ibrahim said at BNM’s 2017 annual report launch recently.

Notably, he said the central bank is “not in any hurry to give any waiver” as there are several players currently in negotiations with domestic investors.

“We do not want to interrupt these decisions by making any announcement on what will happen in June, but that’s something we are looking at,” Muhammad said.

Singapore’s Great Eastern Holdings Ltd is said to be in talks with the Employees Provident Fund (EPF) to sell a stake in its local arm, Great Eastern Life Assurance (M) Bhd, while UK-based Prudential plc’s Malaysian unit, Prudential Assurance Malaysia Bhd, is also reportedly in discussion with the Retirement Fund Inc for a stake sale.

Other foreign insurers said to be mulling ways of complying with the domestic shareholding rule — include Japan’s Tokio Marine Holdings Inc and US-listed property and casualty insurer Chubb Ltd.

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