ING ASIA SALE RAISES REGULATORY HACKLES, MAY FRUSTRATE DUTCH SELLER
Source: Reuters, 15 August 2012
As ING's sale of its $7 billion Asia business enters the final stages, regulatory risks in Malaysia and Thailand remain a headache for potential buyers and could delay the region's biggest insurance M&A deal.
The regulatory uncertainty is another stumbling block for ING as the Dutch bank and insurer seeks to dispose of its Asia insurance units to help repay a bailout from the Dutch government during the 2008 financial crisis.
Its Japan insurance unit, which accounts for nearly a third of ING's assets in Asia by book value, has received lukewarm offers as suitors are wary of the 18 billion euros (US$22.2 billion) of variable annuity policies that may turn into huge liabilities should capital markets plummet. (1.00 EUR = 3.90 MYR)
ING's Southeast Asian insurance operations, accounting for over a fifth of its Asian book value, have drawn the most interest due to the region's robust economic growth. But rules barring foreign companies from owning 100% of life insurance businesses in Malaysia and Thailand could frustrate ING's attempt to sell the units in the two countries.
Bidders such as AIA Group Ltd and Canadian insurer Manulife Financial Corp face the risk of being forced to cut their stakes to comply with local laws if they eventually win the auction.
In 2009, Malaysian regulator Bank Negara issued new guidelines limiting foreign ownership in the insurance sector to 70% to protect the local industry. Thailand recently raised the foreign ownership cap to 49% from 25%.
Foreign insurers including Singapore's Great Eastern Holdings, ING and AIA were allowed to retain their 100% ownership because they began operating in those countries before the regulatory changes.
ING owns 100% of its Malaysian and Thai businesses and 60% of its Malaysian takaful joint venture, an Islamic-compliant insurance business.
Bidders may join forces with local partners willing to buy stakes in ING's operations, while others may lobby regulators on the merits of 100 percent ownership, according to sources familiar with the discussions.
Thai insurers need approval from the finance ministry to allow foreign shareholders to raise their holdings over 49%, and such situations are considered on a case-by-case basis, Pravej Ongartsittigul, secretary general of the Office of Insurance Commission.
Earlier this year, the Thai regulators allowed Japan's Tokio Marine Holdings to increase its stake in a Thai affiliate to raise funds to cover insurance claims after last year's devastating floods.
A spokeswoman for Malaysia's Bank Negara declined to comment on the ING sale and pointed to the foreign ownership rules that govern the country's insurance industry. ING's Malaysian unit is valued at about $1.6 billion, the most valuable of the Dutch bancassurer's Southeast Asian units, according to some estimates.
Life insurance premiums in Malaysia are forecast to grow 5.5% next year, and in Thailand 6%, according to Swiss Re estimates. That compares with the average 4.5% expansion in Asia.
Among the bidders vying for ING's Southeast Asian units are Korean Life Insurance Co Ltd and Dai-ichi Life Insurance, Japan's largest listed life insurer. Depending on how strict the regulators wish to be, the Japanese and Korean companies may have an advantage in the final bidding process.
Manulife, which also has existing Malaysian operations, and whom sources say is also eyeing Aviva Plc's Malaysian business as part of a broader, Asia expansion plan, could run into a similar problem of having a large market share where regulators may not be comfortable with that.
One option for suitors would be to agree with the regulator on a time period over which to sell down their holdings to allowable levels. This solution could work for a new player entering the Malaysian market. For foreign companies with existing, 100%-owned operations this strategy could be less appealing.
Suitors are more relaxed about Thailand, where JVs are structured so that most of the economic benefit from the partnership goes to the foreign partner while the local partner controls the voting rights, according to the source.
ING is also selling its stakes in insurance ventures in South Korea, India and China, after raising 15.2 billion euros from asset sales around the world so far.