Prudential's Malaysia unit in stake sale talks with pension fund as regulatory deadline looms

Prudential's Malaysian unit is one of the leading foreign life insurers in Southeast Asia's third-biggest.
Prudential's Malaysian unit is one of the leading foreign life insurers in Southeast Asia's third-biggest.PHOTO: FACEBOOK/PRUDENTIAL MALAYSIA

HONG KONG (Reuters) - 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$574 million), said people with knowledge of the matter, 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 the people.

Foreign insurers are required to cut their stakes in their local units to 30 per cent to abide by a directive announced by Malaysia's central bank 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 Southeast Asia's third-biggest economy.

KWAP CEO Wan Kamaruzaman Wan Ahmad told Reuters the fund had 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 former could also weigh a listing on the Malaysian bourse to divest the stake, said the people, who declined to be identified because the talks were not public.

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 2017, 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.

Foreign insurers have been expanding in Malaysia and other Southeast Asian countries in recent years, lured by strong economic growth, rising middle-class income and lower insurance penetration.

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 pension fund Employees Provident Fund (EPF) to sell a 30 per cent stake in its wholly-owned Malaysian unit, said the people familiar with the matter.

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

A Great Eastern Holdings spokesman said the company had no further comment beyond its September statement that said it was assessing possible options relating to a minority stake in its Malaysian unit to comply with foreign ownership rules.

EPF declined to comment.

"Some insurers are hopeful that BNM (Bank Negara Malaysia) might extend the deadline but they realise that they still need to have a tentative deal in place ahead of the deadline," said one person familiar with the talks.

Bank Negara Malaysia, the sector regulator, did not immediately respond to Reuters request for comment.

The person said an initial public offering of shares could be a more realistic possibility for some of the smaller insurers, but Prudential and Great Eastern were likely to settle for deals with the funds.