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This article first appeared in The Edge Malaysia Weekly on April 29, 2019 - May 5, 2019

ALL foreign insurers had submitted their proposals to address the minimum 30% Malaysian ownership requirement for their businesses by the April deadline, according to Bank Negara Malaysia.

“There is no specific broad deadline for them to reduce their stakes as it will be based on a case-by-case basis, and discussed on a bilateral basis. We will study their individual plans and will continue to have ongoing discussions with the foreign insurers,” Bank Negara says in an email reply to The Edge, declining to comment on the individual companies.

It is understood that most foreign insurers are opting to contribute to the health scheme for the Bottom 40% (B40) of households.

“Most of them are looking to take the mySalam route. The question is whether their proposals would be enticing enough for the government to waive the foreign shareholding requirement,” a source tells The Edge.

If approved, these insurers will be exempted from having to pare down their holding to 70% by divesting the remainder to local institutions or via an initial public offering (IPO).

Among the companies affected are the Malaysian operations of the AIA Group, Prudential Insurance, Tokio Marine and Zurich.

The mySalam scheme had kicked off with a RM2 billion fund contributed by Singapore-owned Great Eastern Life Malaysia, which has allowed it to be exempted from the minimum local shareholding threshold set by the government.

Malaysia liberalised foreign ownership rules in 2009 to allow foreign equity participation in insurance companies and takaful operators to increase from a limit of 49% to 70%. At the time, Bank Negara had said that a higher foreign equity limit beyond 70% for insurance companies would be considered on a case-by-case basis for players that can facilitate the consolidation and rationalisation of the industry.

In the past, extensions had been granted to firms that did not comply with the foreign ownership limit but following the setting of the June 2018 deadline, which has been extended indefinitely, it appears that the central bank is now taking a tougher stance.

A top executive with a foreign insurer points out that so far, when it comes to discussions with the regulators on the matter, they have been reasonable.

“As long as we can prove that we are genuine about paring down the foreign stake and show progress as well as milestones mapped out and achieved, they would understand,” he says, declining to share the route his company has proposed to the regulators.

When asked about his thoughts on insurers opting for the mySalam scheme, he says it “makes sense as the foreign insurer will be able to keep 100% control”.

“But the crucial question here is, can the insurer get the buy in of its shareholders to undertake this CSR (corporate social responsibility)? That is a potential hurdle,” he points out.

A banker at a foreign bank, who declined to be named, concurs.

“The foreign insurers could be exploring the mySalam route but the key issue here is, will the insurers get clearance from their boards and shareholders? Another question to ask when it comes to this is, the money for the ‘CSR’ scheme, which pocket will it come out of? Will it be from the insurer’s policyholders or shareholders? They need to work it out,” he says.

“Some of the foreign insurers hired bankers to look at the IPO option some months back but that was before Great Eastern took the mySalam route,” he adds.

Meanwhile, the top executive opines that although foreign insurers can opt to divest a 30% stake of their Malaysian business via an IPO, current market conditions may not be best for a listing.

“So, if the listing option is taken, perhaps the IPO might not happen so soon. It all boils down to valuations.

“Prior to the change in government, there were two possible options on the table. One was to sell a 30% stake to a local party and the other was to IPO the stake out. At the time, there were government-linked parties interested to buy the 30% stake,” he says.

“Now, with the change in government, the option to sell a clean 30% strategic stake to a local party might not be as doable, as the government has said that they do not want to be in business. Who else in the country has such deep pockets to buy a 30% stake in a foreign insurer? So now, the two possible options insurers can look into are the IPO or mySalam route,” he adds.

When asked about how the amount contributed to the mySalam scheme will be determined, the top executive says it will be based on individual earnings valuations, among others.

 

 

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