More parties eye MUI insurance unit

(TheStar)PETALING JAYA: Malayan United Industries Bhd (MUI) says the proposed disposal of shares in its general insurance unit, MUI Continental Insurance Bhd, comes after several parties expressed interest in the insurer since higher limits of foreign equity participation in local insurers were allowed.

“We've had a lot of people checking with us since foreign equity participation in local insurance companies was increased to 70% (from 49% in late April 2009). Foreign companies are keen to look at these markets as we (Malaysia) are a growing market,” MUI group chief financial officer Lai Chee Leong told StarBizWeek yesterday.

The company told Bursa Malaysia yesterday that Bank Negara, in a letter dated Jan 5, said it had no objections in principal for MUI's wholly-owned unit, Novimax (M) Sdn Bhd, to start preliminary negotiation with US-based Liberty International Holdings Inc on Novimax's stake disposal in MUI Continental.

Liberty has expressed interest to buy Novimax's 52.21% stake in MUI Continental.

Both parties are to conclude negotiations within six months from the date of approval.

“The proposed disposal is just a normal course of doing business. When opportunities arise, we will look at them. Therefore, we are entering the preliminary talks,” said Lai.

He added that it was premature for a price to be put on the general insurance unit.

The sale of an insurance company tends to present its own complexities, as common yardsticks such as net asset value or price earnings ratio are not the best tools to value the company's intrinsic value. Many proposed acquisitions in the insurance industry have fallen through as both parties fail to agree on pricing.

A recent example was Pacific & Orient Bhd discontinuing its preliminary negotiations with Prudential Holdings Ltd for a stake sale in its insurance unit, Pacific & Orient Insurance Co Bhd. While it did not say why talks were discontinued, news reports citing sources suggested that price was the main reason.

According to its website, MUI Continental was established in 1976 with CNA Financial Corp as one of its shareholders.

MUI Continental, which offers fire, marine, health, motor and other specialised insurance products, has 12 branch offices throughout Malaysia.

For its financial year ended Dec 31 2009, operating revenue was RM224.2mil while profit was RM26.7mil.

Liberty, which is the global arm of Liberty Mutual Group, operates insurance subsidiaries around the world, including Latin America, Europe and Asia. Its largest operations are in Latin America, focused on Brazil, Argentina, Venezuela and Colombia.

An analyst covering insurance stocks said that many foreign insurance companies from Japan and the United States were looking to enter the local market.

Some insurance deals done last year included the sale of Jerneh Insurance Bhd to US-based ACE INA International Holding Ltd and the merging of Hong Leong Financial Group's non-life insurance business with Japan's Mitsui Sumitomo Insurance Co and a sale stake in its life business.

MUI's share price gained 16%, or 3.5 sen, to 25.5 sen yesterday on news of the proposed sale.

Whether the market is getting ahead of itself or not is yet to be seen. I do not think MUI is desperate for cash as this point of time. In my view, they should continue to focus on retail business and get rid of this business. What is clear at this point of time the market needs reasons to re-rate this stock. Selling off insurance unit or stock broking business, revalue its property? or simply tag a higher valuation for its retail arm of Metro Jaya and Laura Ashley. I hope it can stay a bit longer on the top volume leader board for a while so that more people will initiate coverage on this stock. I still think this stock worth closer to $ 0.80/share but the market has no interest to recognize this for the past few years. The time for the owner to unlock its value is getting nearer. You may want to read my past postings for more details.