Insurer Great Eastern Holdings (GE) has reportedly engaged at least one Malaysian bank to explore selling a large stake in its operations over the Causeway for as much as US$1 billion (S$1.35 billion).
The move likely comes in the wake of a central bank rule - which has been in place since 2009 but not enforced - that requires foreign insurance firms in Malaysia to have at least 30 per cent held by domestic investors.
A recent Wall Street Journal article said they "are facing a June 2018 deadline to comply with the rules, which were set by Bank Negara Malaysia".
Potential buyers - not just for the GE stake but for shares in other foreign insurers facing the same issue - would likely be local institutions such as the Employees Provident Fund, Malaysia's largest state pension fund, and Malaysian sovereign wealth fund Permodalan Nasional.
Many insurers started in Malaysia years ago "on the understanding that they would eventually comply with a 2009 rule that capped foreign ownership of local insurance companies at 70 per cent", noted the WSJ on Monday.
The Malaysian government had exempted several foreign firms from that rule, it added.
Potential buyers - not just for the Great Eastern stake but for shares in other foreign insurers facing the same issue - would likely be local institutions such as the Employees Provident Fund, Malaysia's largest state pension fund, and Malaysian sovereign wealth fund Permodalan Nasional.
Minimum percentage of foreign insurance firms in Malaysia to be held by domestic investors, as required by a central bank rule.
Percentage of GE's pre-tax profit for last year that its Malaysian unit contributed, based on GE's Malaysia annual report.
But in July, the central bank said: "As the regulator, Bank Negara Malaysia expects adherence to these agreements and will play a facilitative role to ensure these commitments are met."
The Straits Times reported last month that Singapore's GE, a unit of OCBC Bank, and three other foreign-owned insurers were under pressure to comply with the rule.
It reported that Japan's Tokio Marine and GE had already appointed investment banks to advise them on the sale of their 30 per cent interest to local parties. GE had declined to comment back then.
The minimum 30 per cent Malaysian participation was first mooted in the late 1980s under the government's financial sector rationalisation plan.
Four big players - AIA, GE, Prudential and Tokio Marine - had asked for more time "because of the difficulty in finding suitable partners", said the ST report, adding that negotiations for the sale with targeted parties must be completed before the end of the year.
If those talks are unsuccessful, the foreign insurers must reportedly opt to list their businesses on the local stock exchange.
The WSJ, citing Britain's Prudential and Tokio Marine, noted that "the share sales by these and other foreign insurers could raise almost US$3 billion in total over the next nine months".
A DBS Equity Research note yesterday said a 30 per cent sale of GE's Malaysian operations would have minimal impact on OCBC's bottom line, and would unlock some value for GE and OCBC shareholders.
OCBC holds 87.75 per cent of GE, which on average contributes about 15 per cent to the bank's pre-tax earnings, said the DBS report.
Based on GE's Malaysia annual report, the Malaysian unit contributed about 40 per cent to GE's pre-tax profit for last year. This works out to about 6 per cent of OCBC group's pre-tax profit.
GE is reportedly one of Malaysia's oldest life insurers and its second-largest by net premiums.
The DBS report said: "OCBC's key differentiating factor lies in its insurance business, which gives it a more holistic wealth management platform, which we believe is still underappreciated by the market.
"Solid earnings for the second quarter of this year was testimony of its non-interest income franchise. Asset quality issues pertaining to the oil and gas segment have been dealt with, and sufficient provisions are said to have been made."