MAA can advance with disposal of Takaful arm

Tunku Ya’acob: ‘The PN17 classification was designed for companies that are in trouble. We are not in trouble.’

The move is likely to get company out of PN17

MAA Group Bhd, which has been having funding issues despite being cash-rich, may have finally found a reprieve with the sale of its Takaful arm, MAA Takaful Bhd.

Due to its Takaful business, MAA Group’s activities had been restricted by the Islamic Financial Services Act 2013 (IFSA).

It also does not help that MAA Group has been classified a PN17-status company.

“The restrictions under the IFSA had made it difficult for MAA Group to get out of the PN17 status,” says industry observer.

That is until now. The financial services provider had announced on Bursa Malaysia that the Finance Minister has approved the proposed disposals of MAA Group’s 75% equity interest and Solidarity Group Holding BSC’s (Closed) 25% stake in MAA Takaful Bhd to Zurich Insurance Company Ltd.

MAA said that it and Solidarity had received the minister’s approval through a letter from Bank Negara.

The central bank had, through a letter dated June 15, 2015, stated that it had no objection in principle for MAA Group and Zurich to begin negotiations for the proposed sale.

On Nov 30, 2015, MAA, Solidarity and Zurich jointly submitted an application to Bank Negara for approval of the Finance Minister pursuant to the Islamic Financial Services Act 2013 to enter into an agreement with Zurich for the proposed disposals.

Cash-rich

MAA Group has been classified PN17 since 2011, following the sale of its conventional insurance arm – Malaysian Assurance Alliance Bhd (MAAB) to Switzerland-based Zurich Insurance Co Ltd.

Since then, MAA Group has sought extensions to the deadline for submitting a regularisation plan to Bursa to avoid losing its listing status, the latest being June 30.

MAA Group has been having trouble submitting a regularisation plan as it has not been able to utilise its funds for that purpose – because its hands are bound by the IFSA.

In a 2013 interview with a local English daily, executive chairman Tunku Ya’acob Tunku Abdullah said of MAA Group’s predicament: “The PN17 classification was designed for companies that are in trouble. We are not in trouble.

“We are not (financially) distressed. We have no debts, we are relatively cash-rich but at the same time we are also governed by the central bank unlike all the other PN17 classified companies. By right we should not be in PN17.”

According to MAA Group’s latest quarterly report, the company has cash and cash equivalents totalling RM350.51mil as at Dec 31, 2015. It also has assets for sale worth over RM6mil. Disposing of its Takaful arm would also help increase its cash.

There is speculation that the company could eventually be taken private by Tunku Ya’acob.

“Given the issues that MAA Group has had, one advantage of taking it private is reduced regulatory requirements, which can help provide the company with less restrictions to focus its long-term goals.”

In the past, it was speculated that MAA Group was looking at a proposed rights issue, inject assets into its business or even consider a joint venture partner. There was also speculation that the company could become a target for a reverse takeover.

However, in its notes accompanying its 2015 earnings, MAA Group did say that it would remain listed if it come out of PN17.

“On the PN17 status of the company, it is the board’s intention to maintain the listing status of the company.

“Accordingly the company is in the process of preparing a regularisation plan that takes cognisant of the effects of the proposed disposal of MAA Takaful for submission to Bursa Securities.”

For its financial year 2015, MAA Group recorded a decrease of 18.5% in total operating revenue to RM566.1mil, of which the continuing operations recorded RM565.7mil and the discontinued operations recorded RM400,000.

Under the conventional insurance business, the General Insurance Division comprised wholly of the Indonesia operations recorded a minimal gross earned premiums of RM1,000 due to run-off effects of the said operations that has commenced in 2013.

Under the Takaful business, the General Takaful Division recorded a decrease in total gross earned contributions by 3.2% to RM277.6mil, mainly decline from fire, personal accident, marine, aviation and transit and engineering classes of business, whilst the Family Takaful Division registered a 31.8% decrease in total gross earned contributions to RM250.7mil, affected by the decline from single contribution investment-linked products.

On the outlook for 2016, MAA Group says it expects the operating environment to be increasingly challenging and competitive, given the projected weak global economic growth in 2016.

“Notwithstanding this, the group will continue its efforts to implement management action plans to expanding existing business and improve profitability.

“The group expects its performance for the next financial year to perform in tandem with the Malaysian economy.”