Malaysia likely to review foreign insurance ownership directive - sources

Great Eastern Holdings

12/06/2018 12:40

* Finding buyers for insurers' stakes in local units proving
hard
    * Regulatory directive asked foreigners to cap holding at 70
pct
    * Deadline for submitting plans for cutting stakes ends this
month
    * Prudential, Great Eastern among firms in talks to reduce
stakes 
 

    By Sumeet Chatterjee and Anshuman Daga
    HONG KONG/SINGAPORE, June 12 (Reuters) - Malaysia is likely
to review a directive to foreign insurers to reduce ownership of
their local units by nearly a third as finding domestic buyers
for the equity stakes is proving hard, three people familiar
with the matter said.
    The review may result in the Malaysian regulator putting the
requirement in abeyance, the people said.
    That would provide respite to foreign firms including Great
Eastern Holdings  GELA.SI , Prudential  PRU.L , Tokio Marine
Holdings  8766.T  and Zurich Insurance  ZURN.S  by putting off
deals worth more than $2 billion that were being thrust upon
them.
    Foreign insurers have been expanding in Malaysia and other
Southeast Asian countries in recent years, lured by strong
economic growth, rising middle-class income and lower insurance
penetration. 
    But they were caught offguard last year when Malaysia's
central bank, which also regulates insurers, said it would
enforce its 2009 rule setting a 70 percent cap on foreign
ownership of local insurance businesses.
    The directive had sent foreign insurers in Malaysia, many of
whom operate wholly-owned units, scrambling to seal deals to
sell 30 percent stakes to local state-linked funds or list the
local arms.
    The potential review of the directive comes against the
backdrop of Mahathir Mohamad becoming Malaysia's prime minister
last month and Muhammad Ibrahim resigning as the central bank
governor.
    Two senior officials who were responsible for issues
relating to the insurance sector at Bank Negara Malaysia, the
central bank, have also resigned in recent months, two of the
people said.
    One of the sources said stake sale valuations were below
expectations of some insurers and they had indicated this to the
central bank.
    The Malaysian regulator, however, is yet to formally inform
insurers about the possible review and could still go ahead with
the plan by relaxing some conditions, the two other people said,
declining to elaborate. 
    Bank Negara did not immediately respond to a request for
comment. The people declined to be named as the plans were not
public yet.
    The central bank had said in March measures by some foreign
insurers to cut stakes in their local units are "in relation to
specific commitments" that these firms made when they applied
for entry into the country.  
    
    LOCAL FUNDS
    Citing sources, Reuters reported in March that Prudential
and Great Eastern were in talks with pension funds Kumpulan Wang
Persaraan (KWAP) and Employees Provident Fund, respectively, to
cut their stakes in their wholly-owned local units.  urn:newsml:reuters.com:*:nL4N1QP2SE
    "We cannot comment on it as we are still negotiating on the
deal, and as far as we are concerned the deadline has not
changed," KWAP CEO Wan Kamaruzaman Wan Ahmad told Reuters.
    Representatives at Great Eastern, Prudential, Tokio Marine
and Zurich declined to comment.    
    An EPF spokeswoman said the fund's discussions were still
ongoing.
    The regulator is expected to stick to its end-June deadline
of getting firms to submit plans to reduce stakes by 30 percent,
and a decision on the review is likely to be announced after
that, the people said. 
    Most foreign insurers are struggling to find local investors
who could add value to their units and don't have much appetite
to do listings in the near-term in dour equity markets, they
said.
    A small number of large local funds in Malaysia had stoked
concern among foreign insurers about competing for the same pool
of institutional investors.
    Expected management changes at Malaysian state-linked funds
after the election are also likely to result in muted responses
on their part, especially for deals that don't give them
majority control, the people said.

 (Reporting by Anshuman Daga and Sumeet Chatterjee; Additional
reporting by Liz Lee in KUALA LUMPUR and Junko Fujita in TOKYO;
Editing by Muralikumar Anantharaman)
 ((sumeet.chatterjee@thomsonreuters.com; +852-2847 2094; Reuters
Messaging: sumeet.chatterjee.thomsonreuters.com@reuters.net))