This article first appeared in The Edge Malaysia Weekly on May 16, 2022 - May 22, 2022
MPHB Capital Bhd is finally poised to exit the general insurance business, a quest it started many years ago without much success.
In the latest announcement filed with Bursa Malaysia last week, the company is proposing to dispose of its 51% equity interest in MPI Generali Insurance Bhd (MPIG) to Italian insurer Generali Asia. MPIG is currently a joint venture between MPHB (51%) and Generali Asia (49%).
In the filing, MPHB Cap said the Ministry of Finance, via Bank Negara Malaysia, had approved the disposal of its 51% stake in MPI Generali to Generali Asia.
According to sources, the company had been mulling the sale of MPIG for several years.
It sold a 49% stake to Generali in 2015 and had been looking to dispose of another 21% to the Italian insurer since 2020. If the disposal had been approved by the authorities previously, Generali would have increased its stake to 70% — the maximum shareholding allowed for a foreign insurer — and MPHB Cap would have been left with 30%.
“But an agreement could not be reached and the deal did not seem to be making any progress. Moreover, MPHB Cap did not want to be left holding 30% of the general insurance company. It is a highly competitive industry and if the partner is not strong, holding 30% may not be worth the investment,” says a source.
On the same day the company announced the deal with Generali last week, Affin Bank Bhd told Bursa that it had obtained approval from MoF to dispose of 21% of its equity interest in AXA Affin Life Insurance Bhd (AALI) and a 2.95% stake in AXA Affin General Insurance Bhd (AAGI) to Generali Asia NV.
Affin Bank currently owns 51% of AALI and 49.95% of AAGI. AXA owns the remaining equity interest in AALI and AAGI that Generali has proposed to acquire.
In a nutshell, the transactions will see Generali holding 70% and Affin 30% in a special purpose vehicle that will carry the life and general insurance business of both companies.
“Consequently, Affin is required ... to make the necessary submission for its shareholding in the Newco to Bank Negara within a month from May 6,” the banking group said.
“Generali’s acquisition of MPIG is happening at a time when many foreign insurers are exiting or have exited the Southeast Asian market. It has been said that Generali is strengthening its presence in Malaysia as it may not have the muscle to expand in Europe. Therefore, MPIG is a good opportunity for it to do so,” says a source familiar with the industry.
So, how much will MPHB Cap get should the deal with Generali go through?
“A decent valuation today for the sale of a general insurance firm would be at least one time book value,” says an analyst.
According to MPIG’s website, its shareholders’ funds for FY2020 stood at RM670.9 million. Assuming the transaction is concluded at one time book value, it potentially translates into MPHB Cap getting about RM330 million, based on its 51% stake in the joint venture.
General insurers generally command lower premiums than life insurance companies.
In July last year, AMMB Holdings Bhd proposed the sale of its 51%-owned AmGeneral Holdings Bhd to Liberty Insurance Bhd (LIB) for RM2.29 billion, to be satisfied via cash and a 30% stake in LIB. The valuation has not been disclosed yet.
According to a report, in June 2016, Swiss insurance company Zurich Insurance Group Ltd (ZIG) acquired MAA Group Bhd’s MAA Takaful Bhd (now known as Zurich Takaful Malaysia Bhd) for RM525 million, valuing the transaction at about four times book value. That was an exception, as the average price-to-book value paid for Multi-Purpose Insurans Bhd, AmLife Insurance Bhd and AmFamily Takaful Bhd by their buyers averaged 2.13 times.
Nevertheless, MPHB Cap is likely to reward its shareholders should the disposal of the insurance arm take place.
“If the deal goes through. There may be a potential dividend payout to shareholders. After all, what else can MPHB Cap do with the cash pile?” says the source.
Should the deal materialise, it will mark a new phase for MPHB Cap as a property company.
“Our group will continue to be on the lookout for potential landbanking opportunities, either through outright sale or joint ventures with established property developers,” its chairman Tan Sri Yahya Awang said in the company’s 2021 annual report.
MPHB Cap owns several parcels of land, including the Pengerang land in Johor that is next to the Refinery and Petrochemical Integrated Development project, as well as about five acres in the vicinity of the Golden Triangle, in Jalan Imbi and Jalan Sultan Ismail in Kuala Lumpur.
It also has two hotels — Flamingo by the Beach in Penang and Flamingo by the Lake in Kuala Lumpur.
Save by subscribing to us for your print and/or digital copy.
P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.