Ing agrees to sell malaysia unit to aia group bloomberg
ING Agrees to Sell Malaysia Unit to AIA GroupBy Cathy Chan and Maud van Gaal - Oct 11, 2012AIA Group Ltd. (1299), the third-largest Asia-based insurer, agreed to buy ING Groep NV (INGA)’sinsurance business in Malaysia for about 1.3 billion euros ($1.7 billion) in its largest acquisition as alisted company.The purchase will boost the percentage of profit AIA gets from Malaysia to 13 percent from 8 percent,it said in a statement. Separately, AIA said its value of new business rose 22 percent in the thirdquarter to a record $300 million.“The deal may add around 5 percent to AIA’s earnings per share and shift its business to a higher-growth region,” Arjan van Veen, a Hong Kong-based analyst at Credit Suisse Group AG, said in an e-mail response to Bloomberg. AIA’s value of new business growth in the third quarter well exceededthe consensus analyst estimate of 12 percent, according to van Veen.AIA Chief Executive Officer Mark Tucker has sought to revive new business growth after the HongKong-based insurer was hurt during the financial crisis because of woes at its bailed- out formerparent American International Group Inc. (AIG) Tucker today said the strength of AIA’s balancesheet means it can grow its existing business as well as buy new assets.“This is a rare opportunity to acquire a high-quality company,” Tucker said in a conference call withwire services reporters today. “It’s an excellent strategic fit for AIA.”The acquisition will combine ING’s operations, the third- largest in Malaysia, and AIA’s existingbusiness, the fourth biggest, to create the No. 1 life insurer in the country, according to the statement.Still LookingAIA has the capability of paying for the acquisition with any combination of internal cash and debtwith the specific mix to be decided closer to the completion date, Tucker said. AIA, which has no debtbefore the acquisition, will remain financially strong afterwards, he added.The Malaysian acquisition was both rare in size and quality, Tucker said, adding AIA will continue tolook at acquisitions that are both strategically and financially compelling.
The purchase includes ING’s life-insurance and employee- benefits businesses in Malaysia, as well asits 60 percent stake in ING Public Takaful Ehsan Berhad. The deal values the operations at 16.9 times2011 earnings and 2.2 times book value in the first half of 2012, ING said.The deal values the Malaysian business at 1.8 times of its 2011 embedded value, Tucker said, decliningto give forward- looking data because of Hong Kong stock exchange restrictions. Embedded value isan actuarial estimate of the economic value of life insurance business.ING GainAIA, which went public two years ago in Hong Kong’s biggest initial public offering, ended the dayunchanged at HK$29.60 in Hong Kong trading today, keeping this year’s gains at 22 percent. ING lost0.2 percent to 6.38 euros in Amsterdam yesterday.The transaction, which may be completed in the first quarter, is expected to lead to a gain of about780 million euros, Amsterdam-based ING said.AIA is in talks with the Malaysian regulator, Tucker said on the call in answer to a question regardingwhether the deal would meet obstacles in a country which restricts 100 percent foreign ownership oflife insurance companies.There are no current regulatory hurdles preventing the acquisition, Ng Keng Hooi, AIA regional CEOin charge of Taiwan, Malaysia, Singapore, China and Brunei, said during a press conference in KualaLumpur today.Last month, AIA agreed to pay $109 million to buy 92 percent of Aviva NDB Insurance Plc (CTCE),Sri Lanka’s second-largest life insurer, from London-based Aviva Plc (AV/) and NationalDevelopment Bank.AIA’s existing Malaysian operations accounted for about 6 percent of new business value in the sixmonths to May 31, according to a statement on July 27. That will rise to 10 percent if the takeoversucceeds, it said today.Sale RequirementAIA’s market share will double to 25 percent in the country, which the insurer described as one ofSoutheast Asia’s most attractive and fast growing life assurance markets.Credit Suisse analysts raised AIA’s 12-month price target to HK$33 from HK$32 and kept theoutperform rating for the stock, citing the acquisition and third-quarter new business trends.
Deutsche Bank AG, Morgan Stanley, Evercore Partners Inc. and CIMB Group Holdings Bhd. advisedAIA on the transaction. Debevoise & Plimpton LLP is the legal adviser to the firm, AIA said in a stockexchange statement today.AIA received a $1.73 billion 12-month bridge loan from eight banks to help fund the purchase,according to a person familiar with the matter. The banks, which will fund the facility in equalamounts, are Australia & New Zealand Banking Group Ltd., BNP Paribas SA, DBS Group HoldingsLtd., Deutsche Bank, HSBC Holdings Plc, JPMorgan Chase & Co., Morgan Stanley and StandardChartered Plc, the person said, asking not to be identified because the details are private.‘Major Step’ING is required to sell its insurance and investment- management businesses before the end of 2013after getting 10 billion euros of state aid during the financial crisis. While executing the imposeddivestment program, it’s also selling banking assets to help speed up repayment of a remaining 3billion euros with premiums.“Today’s announcement is the first major step in the divestment of our Asian insurance andinvestment management businesses and shows that ING continues to make steady progress in therestructuring of our company,” Chief Executive Officer Jan Hommen said in a statement.In the last six weeks, ING announced an agreement to sell its Canadian online bank for $3.16 billion,its U.K. Internet business and a 33 percent stake in China Merchants Fund, an investmentmanagement joint venture. The firm also raised about $3 billion last month by selling 54 millionshares of McLean, Virginia-based Capital One Financial Corp. (COF)Earnings BoostING’s Asian insurance and asset-management business had a combined book value of 6.6 billioneuros, the bank said on Sept. 27. The company’s operations in the region include emerging marketssuch as Malaysia, where rising incomes are fueling demand, and Japan, which is grappling withdeflation and an aging population.AIA’s gauge of projected future profitability of new policies increased to $300 million from $245million a year earlier, overcoming depreciating Asian currencies, the insurer which sells policies inlocal currencies yet reports earnings in dollars said in a separate statement to Hong Kong’s stockexchange today.Underlying annualized new premium, the sum of first-year premiums and 10 percent of singlepremiums, grew 17 percent to $696 million, from $594 million a year ago.
New business margin, measured by value of new business as a percentage of annualized newpremium, widened by 11 percentage points to 42.6 percent, the fourth straight quarter above 40percent.“Given the significant improvement in overall margin over the last 12 months, there’s a concern thatmargins could be peaking for AIA,” Morgan Stanley analysts led by Ben Lin wrote in an Oct. 4 note.“In our recent meetings with investors, some raised the view that they would like to see the growthcomposition shift more toward volume growth and less on margin expansion.”To contact the reporters on this story: Cathy Chan in Hong Kong at email@example.com; Maudvan Gaal in Amsterdam at firstname.lastname@example.orgTo contact the editors responsible for this story: Philip Lagerkranser at email@example.com;Frank Connelly at firstname.lastname@example.org ®2012 BLOOMBERG L.P. ALL RIGHTS RESERVED.