HONG KONG • Prudential's Malaysian unit is in talks with the country's No. 2 pension fund to sell a 30 per cent stake, valued at about US$435 million (S$572 million), as overseas insurers race to comply with new foreign ownership rules.

The discussions between Prudential Assurance Malaysia, a wholly owned unit of the British insurer, and Kumpulan Wang Persaraan (KWAP) are not exclusive, and details of a possible deal could be finalised as early as this month, said people with knowledge of the matter.

Foreign insurers are required to cut their stakes in their local units to 30 per cent, Malaysia's central bank said last year, under an initiative to lift domestic participation in the industry.

That has prompted a rush from the likes of Prudential, Great Eastern Holdings, Tokio Marine Holdings and Zurich Insurance in Malaysia to find ways of divesting stakes, and submit plans to the regulator before a June deadline.

The Malaysian unit of Britain's largest insurer by assets is one of the leading foreign life insurers in South-east Asia's third-biggest economy.

KWAP chief executive Wan Kamaruzaman Wan Ahmad said the fund submitted an offer for the Prudential unit's stake, but declined to give details.

Prudential did not comment on the discussions, but said it was committed to its local business.

There is no certainty that Prudential's talks with KWAP will result in a deal, and the insurer could also weigh a listing on the Malaysian bourse to divest the stake, one person familiar with the matter said.

The Malaysian regulator's new rule had stoked some concern among foreign insurers as a small number of large local funds in the country meant they will be competing for the same pool of institutional investors.

Prudential's Malaysian unit - whose net premium earnings rose 3.3 per cent to 3.1 billion ringgit (S$1.05 billion) in the six-month period ended June last year - has an embedded value of about 5.5 billion ringgit, one of the people said.

That values a 30 per cent stake in the unit at 1.7 billion ringgit. Embedded value is the net asset value of an insurer plus the present value of potential future profits from existing life and health insurance contracts.

Besides Prudential, other foreign insurers in Malaysia are also busy finalising options for reducing their stakes. Singapore-listed Great Eastern is in talks with Malaysia's state Employees Provident Fund to sell a 30 per cent stake in its wholly owned Malaysian unit, said people familiar with the matter.

Great Eastern Life Assurance Malaysia is the market leader in Malaysia's insurance sector.

REUTERS