ING to sell Malaysian insurance unit to AIA for $1.73 billion

HONG KONG/AMSTERDAM Wed Oct 10, 2012 11:17pm EDT

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HONG KONG/AMSTERDAM (Reuters) - Pan Asian insurer AIA Group Ltd has agreed to buy ING's (ING.AS) Malaysian insurance operations for $1.73 billion in cash, handing the Dutch financial services firm its first deal in a nine-month drive to sell off Asian assets.

The sale of the Malaysian unit is expected to be followed soon by the divestment of ING's Japan, South Korea, Hong Kong and Thailand units, as the bailed-out Dutch financial firm offloads assets to repay 10 billion euros ($12.9 billion) in state aid received during the 2008 financial crisis.

For AIA, the purchase of the Malaysian operations marks its second M&A deal in less than a month, and gives it a leading position in the fast growing Southeast Asian economy.

AIA was spun out of U.S. insurer AIG (AIG.N) in 2010 through a $20.5 billion IPO, and Hong Kong-based CEO Mark Tucker has been re-building the business after it lost agents and market share amid AIG's near collapse during the financial crisis.

"It's a good deal and they are paying up to buy a good quality business and to expand into a rapidly growing market," said Credit Suisse analyst Arjan van Veen, describing ING's Malaysian business as the "jewel in the crown".

AIA said it was paying a multiple of about 1.8 times embedded value for the Malaysian business, compared with AIA's own multiple of 1.5 times. Embedded value is a common measure for insurance companies and includes the present value of future profit from long-term insurance contracts.

"This is immediately accretive to earnings. It is cash positive," AIA Chief Executive Mark Tucker told reporters on a conference call on Thursday.

Van Veen estimated the deal would add 5 percent to AIA's earnings per share.

The deal, which confirmed a report by Reuters on Wednesday, marks ING's first sale after it announced plans to auction its Asian insurance operations in January as part of a global asset sell-off program.

ING originally wanted to sell its entire Asia insurance operation, with a book value of 6.1 billion euros, to one buyer but said it was willing to split up the business if it could raise more money that way.

"Today's announcement is the first major step in the divestment of our Asian insurance and investment management businesses and shows that ING continues to make steady progress in the restructuring of our company," said Jan Hommen, chief executive, in a statement.

STRONG DEMAND FOR SOUTHEAST ASIA

ING's Southeast Asian operations attracted bidding interest due to the region's rapid growth potential. Life premiums in Malaysia are forecast to grow at 5.5 percent next year, compared with a world average of 3.7 percent, according to Swiss Re estimates.

The race to buy ING's Japan, Hong Kong and much smaller Thailand operations is still on, with Canada's Manulife Financial Corp (MFC.TO) and Hong Kong business tycoon Richard Li in the running, a source told Reuters earlier.

KB Financial Group (105560.KS) is in advanced talks to buy ING's South Korean operations, sources have told Reuters.

AIA said the Malaysian deal, which is subject to regulatory approval, would boost its ranking in Malaysia to No. 1 by total premiums.

"It's an excellent strategic fit with AIA and it plays directly to our corporate strengths and priorities," Tucker said. "Clearly this is one of Southeast Asia's most attractive growth markets."

The deal would also strengthen AIA's bank distribution channel, an area analysts believe AIA needs to beef up. The acquisition would be funded through internal cash resources and debt financing, AIA said.

AIA also announced a 22 percent rise in its value of new business (VONB) to $300 million and said its VONB margin had increased to 42.6 percent, up 11 percentage points from the same period a year earlier.

Last month, AIA agreed to buy British insurer Aviva Plc's (AV.L) Sri Lankan operations for $109 million.

ING's Malaysia business sells life, general, and Islamic insurance products and has about 1,200 employees and over 1.6 million customers.

ING said it expects a net gain of about 780 million euros from the transaction, which is expected to close in the first quarter 2013.

Deutsche Bank, Morgan Stanley, Evercore Partners, CIMB and Debevoise & Plimpton LLP advised AIA. Goldman Sachs and J.P. Morgan advised ING.

($1 = 0.7751 euros)

(Additional reporting by Saeed Azhar and Clare Baldwin; Editing by Gary Hill, Carol Bishopric, Michael Flaherty and Richard Pullin)

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