TORONTO/KUALA LUMPUR Sun Life Financial Inc (SLF.TO) and Malaysian state investor Khazanah will buy Aviva Plc's (AV.L) Malaysian insurance joint venture with lender CIMB Group for 1.8 billion Malaysian ringgit ($597 million) in a deal that will accelerate Sun Life's push into southeast Asia.
Sun Life, Canada's third-largest insurer, has targeted the region for expansion due to its rapid growth, high savings rates, and relative underpenetration of insurance products.
"We see huge opportunity there. There are 600 million people, the economies are growing, there is a growing middle class" in Southeast Asia, Kevin Strain, president of Sun Life Financial Asia, told Reuters.
Britain's Aviva, the world No. 6 insurer, is exiting markets across the world to boost its underperforming share price. Last month, Aviva sold its U.S. business for $1.8 billion.
Under the terms of the deal, Sun Life and Khazanah Nasional Bhd KHAZA.UL will buy 49 percent each in CIMB Aviva Assurance Berhad and Islamic insurer CIMB Aviva Takaful Berhad, which together form the joint venture.
CIMB Group Holdings (CIMB.KL) will retain a 2 percent stake. Sun Life and Khazanah, which owns a 29.9 percent stake in CIMB, will each pay half of the purchase price.
Khazanah owns stakes in some of the country's largest listed firms, ranging from Axiata Group Bhd (AXIA.KL), Asia's third-largest mobile services group outside Japan and China by subscribers, to Malaysia's biggest property company by market value, UEM Land Bhd ULHB.KL.
"This is an important investment for Khazanah," said Azman Mokhtar, Khazanah's managing director. "It marks not just an opportunity to invest into an asset in a growth sector, but also brings together a unique commercial partnership among three strong parties in their respective areas."
The deal, which is not expected to have meaningful earnings impact for Sun Life in the near term, includes a new 20-year exclusive bancassurance agreement with CIMB Bank.
Analysts who follow Sun Life said the deal appeared to be on the expensive side, but was still a positive for the company's long-term growth goals.
"Off the cuff, it looks to be a bit pricey, but bigger picture I think a step in the right direction," said Tom Lewandowski, a St. Louis-based financial analyst at Edward Jones.
Sun Life is now present in seven Asian markets, including four in Southeast Asia, following its launch of a joint venture in Vietnam last year with PVI Holdings. (PVI.HN)
Shares of Sun Life rose 40 percent last year on the back of recovering markets, and were up 1.2 percent at C$28.27 on the Toronto Stock Exchange on Thursday. Aviva's shares fell 0.03 percent in London.
Sun Life, which also has a large U.S. presence that includes mutual fund manager MFS, last year said it aimed to grow its operating profit from its Asian division to C$250 million by 2015. Through the third quarter of 2012, the Asian unit had produced C$79 million in operating profit.
Sun Life Chief Executive Dean Connor has said the company will update its financial objectives, including a company-wide goal of C$2 billion operating profit by 2015, once it closes its pending $1.35 billion sale of its U.S. annuity business later this year.
(Additional reporting by Bhaswati Mukhopadhyay in Bangalore and Claire Baldwin in Hong Kong; Editing by Leslie Adler)