SINGAPORE - Great Eastern Holdings, the insurance arm of OCBC, has engaged at least one Malaysian bank to explore selling a large stake in its Malaysian operations for as much as US$1 billion (S$1.35 billion), according to a report in the Wall Street Journal.
Great Eastern is among a number of insurers, including British life insurer Prudential and Japan's Tokio Marine Holdings, mulling a 30-per cent stake sale in their respective Malaysian subsidiaries.
The disposal is to meet a Bank Negara's June 2018 deadline to comply with the 70-per cent foreign ownership cap on insurers, which was issued back in 2009. The foreign insurance firms had been enjoying exemptions from the rule, but in July this year the Malaysian central bank said they must honour their commitment to meet it.
Potential buyers of stakes that would be disposed of by foreign insurers would be local institutional funds such as the Employees Provident Fund and Permodalan Nasional Bhd, the Journal said in its report on Tuesday (Sept 19).
In a research note on Wednesday (Sept 20), DBS Vicker Securities said a 30 per cent divestment of its Malaysian operations would have minimal impact on OCBC's bottomline. It would, however, unlock some value for Great Eastern's and OCBC's shareholders.
Based on Great Eastern Malaysia's 2016 annual report, DBS Vickers Securities estimates that the Malaysian unit contributed approximately 40 per cent to Great Eastern's 2016 pre-tax profit. This works out to about 6 per cent of OCBC group pre-tax profit.
OCBC holds 87.75 per cent of Great Eastern, which on average contributes approximately 15 per cent to OCBC group's pre-tax earnings, according to DBS Vickers Securities.