20 July 2017

Great Eastern & Prudential Malaysia planning for an IPO listing ???

Along with the continuous efforts by Bank Negara Malaysia (BNM) to further tightening the local financial industry, insurance companies could be their next focus. Why said so?

Based on a news report by Bloomberg:
'Foreign insurers have until the end of June 2018 to reduce their holdings in local firms to 70% at most, one person said. The country’s central bank has been weighing tougher enforcement of a cap on foreign ownership as it seeks to boost local participation in the industry, people familiar with the matter said in April.'


Automatically, this will make us think about a few foreign insurers which are operating in Malaysia currently such as Great Eastern, Prudential, AIA and Tokio Marine. All of them are wholly owned local unit by their foreign-based parent company. Reducing the parent's shareholding to 70% means that they have to sell its stakes or opt for an IPO listing here.

Which way is better?
Selling a stake (30% at least) to local counterparts definitely is not an easy task due to its highly regulated environment and huge capital required because of its size. We're talking about multi-billions stakes here.

Alternatively, these insurers can consider an IPO listing instead. First, it's easier to gather a cumulative of takers for 30% stakes. Second, a listing could enhance the visibility of the company and for branding purposes. Third, the pricing is based on the market demand which could be easier for them to find suitable suitors in the future.

How much could the IPOs fetch?
'A sale of a 30% stake in Great Eastern Life Assurance (Malaysia) Bhd. could raise about 5 billion ringgit ($1.2 billion), while the disposal of a similar stake in Prudential Malaysia Assurance Bhd. would fetch at least 3 billion ringgit, the people said. Japan’s Tokio Marine Holdings Inc. has appointed a bank to advise on options for cutting its stake in its local unit, which could raise around 1 billion ringgit, according to one of the people.' Source: Bloomberg

Total = 5 + 3 + 1 = RM 9billion !!!

Any sample?
As to date, notably, two foreign insurers which already floated in local bourse is Manulife Holdings Bhd and Allianz Malaysia Bhd. Currently, both of them are garnering a market capitalization of RM637million and RM2.46billion respectively.

(Past 5 years share price performance. Source: Bloomberg)

(Past 5 years share price performance. Source: Bloomberg)

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