Sun Life Financial Inc. (SLF) and Khazanah Nasional Bhd. agreed to buy 98 percent of Aviva Plc (AV/) and CIMB Group Holdings Bhd. (CIMB)’s Malaysian insurance joint venture for 1.8 billion Malaysian ringgit ($600 million).
Sun Life and Khazanah, Malaysia’s state investment fund, will each buy 49 percent of the firm from London-based Aviva and CIMB Group, the companies said in a statement today. CIMB Group will retain a 2 percent share. The price values CIMB-Aviva at 2.4 times its so-called embedded value at the first half of 2012.
“This transaction is perfectly aligned with our strategy for expanding our footprint in Asia,” Kevin Strain, president of Sun Life Financial Asia, said in the statement.
Malaysia’s insurance industry has been luring international players keen to expand in an economy that has defied the global slump with gross domestic product expanding by more than 5 percent for the five quarters through September. AIA Group Ltd. (1299), the third largest Asia-based insurer, agreed to buy ING Groep NV (INGA)’s Malaysian operations and Zurich-based Ace Ltd. (ACE:US) bought Jerneh Insurance Bhd. in 2010.
Sun Life, Canada’s third-largest insurer, is seeking to expand in higher-growth markets as it exits some U.S. businesses such as variable annuities and individual life insurance.
For Aviva, the sale marks the latest step in a strategy to shed a third of its 58 businesses as it seeks to replenish capital that was depleted more than U.K. rivals during the European sovereign debt crisis. The sale will increase its economic capital surplus ratio by 2 percentage points to 171 percent of its regulatory requirements.
Aviva was little changed at 368 pence in London trading, giving the company a market value of 10.8 billion pounds ($17.3 billion).
Khazanah is the largest shareholder in Kuala Lumpur-based CIMB with 29.9 percent of the bank, data compiled by Bloomberg show. Toronto-based Sun Life and CIMB already operate an insurance joint venture in Indonesia that was started in 2009.
At 2.4 times embedded value, a measure of an insurer’s future profits, the price is higher than the 1.8 times AIA agreed to pay for ING’s Malaysian business in October. The sale was for 1.3 billion euros ($1.7 billion), AIA’s largest acquisition as a public company.
“We are able to enter a sector in Malaysia and eventually build a footprint into the region of a very good sector, which is life insurance,” Azman Mokhtar, Khazanah’s managing director, told reporters in Kuala Lumpur. “This is a good way to play rising incomes.”
Khazanah said the value of its holdings rose 24 percent last year after selling shares in companies, including Asia’s biggest hospitals operator IHH Healthcare Bhd. (IHH) The net asset value of its investments climbed to 86.9 billion ringgit at the end of 2012 from 70 billion ringgit a year earlier, the Kuala Lumpur-based fund said in a statement today.
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