Sun Life and Khazanah to pay $600 million for Malaysian insurer

The deal values CIMB Aviva at a generous premium, but the real prize is a long-term bancassurance deal with CIMB.

Sun Life Financial, Canada’s third-biggest insurer, has teamed up with Khazanah Nasional to buy 98% of CIMB and Aviva’s Malaysian life insurance joint venture in a deal valued at M$1.8 billion ($600 million).

Under the terms of the proposed deal, Khazanah and Sun Life will each own 49% of the business, which includes CIMB Aviva Assurance and CIMB Aviva Takaful, an Islamic insurer. The price tag also includes a new 20-year exclusive bancassurance agreement with CIMB, Malaysia’s second-biggest bank.

"This transaction is perfectly aligned with our strategy for expanding our footprint in Asia," said Kevin Strain, president of Sun Life Financial Asia. “We are investing in a country with one of the most developed economies in the Asean region and a growing middle class.”

The deal values CIMB Aviva at 2.4 times its embedded value (for the first half of 2012), compared to the 1.8 times that AIA paid for ING Malaysia in October.

However, sources familiar with the deal say that the valuation represented the business’s potential rather than its recent performance. Premium income has more than halved since the joint venture was established in 2007, but one source described the agreement with CIMB as “the main prize”.

“CIMB is a premium banking franchise in Malaysia, so the duration of the bancassurance agreement adds real value to the deal,” said the source.

The bank’s network in Malaysia includes 312 branches and 8 million customers.

According to a statement by Aviva, Sun Life is paying about $240 million for its 49% stake. Assuming that Khazanah is paying the same for its stake, the value of the bancassurance agreement is roughly $120 million.

"We look forward to working with the new bancassurance partners we have chosen after an extensive selection process," said Nazir Razak, CIMB’s group chief executive. “Bancassurance remains a core component of our wealth management proposition and we believe that the enhanced bancassurance agreement and potential regional synergies will enable our new partners to manufacture and support a more competitive product range for us to take to our customers.”

Khazanah, a state-owned Malaysian investment company, clearly has plenty of money to deploy after monetising parts of its holdings in several portfolio companies during the past year. It raised close to $500 million in December through the sale of a $133 million stake in Tenaga Nasional, and another $356 million from its exit in Hong Kong-listed AIA Group.

Within Asia, Sun Life has operations in Hong Kong, the Philippines, Japan, Indonesia, India, China and Vietnam and Bermuda and total assets under management of more than $500 billion.

On the buy side, Bank of America Merrill Lynch advised Sun Life and Rothschild advised Khazanah, while on the sell side Morgan Stanley advised Aviva and J.P. Morgan advised CIMB.

¬ Haymarket Media Limited. All rights reserved.
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