HONG KONG (Reuters) - Pan Asian insurer AIA Group Ltd (1299.HK) struck its maiden M&A deal as an independent company by agreeing to buy the bulk of British insurer Aviva's (AV.L) Sri Lanka operation in a deal valued at $109 million.
It comes as AIA is seen as the frontrunner to buy some of ING's ING.AS Southeast Asian operations and as several other global insurers are stepping up their presence in the region to tap rapid growth in insurance premiums.
For Aviva, the Sri Lankan exit is part of a wider retreat from sub-scale Asian markets as it confronts euro zone exposure, a plunging share price and shakeup of its top management. It has also put its South Korean and Malaysian businesses up for sale.
AIA, a former unit of U.S. insurer AIG (AIG.N), said on Thursday that it has agreed to buy a 92.3 percent stake in Aviva NDB Insurance AVIV.CM in a deal which includes a 20-year exclusive bancassurance agreement with Sri Lanka's National Development Bank NDB.CM.
AIA is buying stakes from both British insurer Aviva (AV.L) and NDB and will pay for the acquisition in cash. Shares in AIA extended gains to trade up 2.3 percent at HK$28.90, outpacing a 1.5 percent rise in the benchmark Hong Kong share index .HSI.
Manulife Financial Corp (MFC.TO), Sun Life Financial Inc (SLF.TO) and Prudential plc (PRU.L), have been in invited to submit binding bids to buy Aviva's Malaysian unit by October 29, sources told Reuters earlier this week.
Just under 8 percent of the Aviva NDB asset will remain publicly traded on the Colombo Stock Exchange. AIA will sell the 83.9 percent stake in NDB Aviva Wealth Management Ltd, which is part of the transaction, back to NDB.
AIA's chief executive, Mark Tucker, called Sri Lanka "compelling" because of its strong economic growth prospects and low existing levels of insurance penetration.
Insurers are increasingly turning to Southeast Asia because of its high growth and its booming middle class.
The Aviva and NDB joint venture generated gross written premiums of $81 million in 2011, with life insurance premiums accounting for about $60.75 million of that amount.
Deutsche Bank (DBKGn.DE) is advising AIA on the transaction, which is still subject to regulatory approval. Aviva had hired Morgan Stanley (MS.N) to advise on the sale of units in Malaysia, South Korea and Sri Lanka, sources previously told Reuters.
Reporting by Clare Baldwin and Denny Thomas; Editing by Matt Driskill