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Saturday January 19, 2013

Analyst: Sale of CIMB Aviva not likely to boost M&A activities

PETALING JAYA: The sale of CIMB Aviva Assurance Bhd and CIMB Aviva Takaful Bhd to Khazanah Nasional Bhd and Canada's Sun Life Financial Inc cannot be seen as a prelude to further industry consolidation.

This was because the deal was done as Britain's Aviva plc was under pressure to dispose of non-core assets that required too much capital, one banking analyst said.

Last month, it sold off its US business for US$1.8bil (RM5.4bil), its largest-ever disposal.

“In other words, they've been wanting to do this for a long time, it is not like they are setting any industry trend of sorts,” said one banking analyst.

Another analyst who tracks the insurance industry pointed out that consolidation had been happening in the industry in the past couple of years with recent deals like AIA Group Ltd buying ING Malaysia and AmBank Group buying Kurnia Insurans (M) Bhd.

Nevertheless, he concurs with the other analyst that it is too premature to believe that the disposal of CIMB Aviva will accelerate merger and acquisition activities in the insurance industry.

Khazanah and Sun Life are forking out a combined RM1.8bil to buy the companies from CIMB Group Holdings Bhd and Aviva.

CIMB had owned 51% and Aviva the balance in the CIMB Aviva companies that were formed in a 2007 joint venture. Both are selling out of the business.

Khazanah and Sun Life will acquire a 98% stake while the CIMB Group will retain a 2% share in the companies via the issuance of new shares worth RM43.5mil in a new insurance holding company, Renggis Ventures Sdn Bhd, a Khazanah unit.

In its note to clients on CIMB Group, Hong Leong Research said that it was positive on the deal as the sale was being done at about 3.7 times book versus 2.2 times which was what AIA Group recently paid for ING Malaysia, and 1.8 times which was what Aviva had earlier paid for a 49% stake in Commerce Life Assurance Bhd.

“It will unlock value from CIMB Group's non-core assets and boost capital ratios without sacrificing any material earning contributions,” the research outfit said, adding that the arrangement to retain a 2% stake was a win-win situation as CIMB would continue to earn fees by selling insurance and takaful products of the new entity.

In its note, Alliance Research pointed out that the indicative gain of the disposal to CIMB was about RM800mil based on the latest combined book value of CIMB Aviva entities.

Kenanga Research, meanwhile, opined that the cash proceeds from the sale would likely go towards rewarding shareholders.

CIMB Group was highly likely to offer a one-off dividend reinvestment plan to shareholders as part of its capital management plan, it said.

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