Another local party keen on PacificMas’ insurance biz: FD

PacificMas Bhd has found another interested party to acquire its insurance business and an application has been made to Bank Negara Malaysia (BNM) to enter into negotiations, PacificMas non-independent director George Lee said.
“It’s pending approval,” he told reporters after the company’s AGM in Kuala Lumpur on June 10, 2009, reports The Edge Financial Daily.
He did not name the interested party, the report added.
THE REPORT GOES ON:
Lee expressed confidence that the impending round of negotiations would work out, as the interested party is believed to be prepared to pay PacificMas’ asking price — a price tag which is pegged at a premium of the insurance business’ net book value of RM123 million as at March 31, 2009.
“It’s a local party and they are prepared to pay. After having failed on two previous occasions (due to pricing), we would not want to go into discussions with this party if we don’t have a fairly good indication that they are at least prepared to pay the price that the board feels is a fair price,” Lee said.
Lee is also the executive vice-president and head of group investment banking of Oversea-Chinese Banking Corporation Ltd (OCBC).
“We have a certain price in mind as we think it’s a profitable business. Therefore, it should be sold at a certain premium to book value and we are looking at a certain valuation,” he added.
The previous interested parties included EON Capital Bhd, OSK Holdings Bhd and even T Ananda Krishnan’s company — Usaha Tegas Sdn Bhd.
On PacificMas’ plans for the cash from the sale, Lee said the board may look at alternative investments, principally in finance services. “Also, we will definitely look at growing our fund management and leasing businesses,” he said.
“After careful evaluation and if the conclusion is that we can’t find a viable alternative and the money is put in fixed deposit, then it’s better we return the money to the shareholders than to put money in the bank,” Lee added.
For the year ended Dec 31, 2008, its insurance business contributed 29% to the group’s profits while its leasing and fund management businesses contributed 34% and less than 1% respectively. In 2007, the fund management business contributed 15% to group profits.
“Immediately after we sell the insurance (business), group profitability will shrink. What we are looking at over time is for the fund management and leasing businesses to contribute incremental profit on an absolute basis,” Lee said.
He added there was potential for the businesses to develop as currently the group’s fund management segment managed RM1.7 billion while the biggest fund in the country managed close to RM30 billion. The leasing business has a 1.5% market share of the RM50 billion market.
Industry observers believe PacificMas’ plan to grow these businesses has potential given that the group would also be able to leverage on OCBC.
On speculation of OCBC injecting Great Eastern Life Malaysia (GELM) into PacificMas post-disposal, Lee said the exercise was proposed twice but had failed.
“Nothing came out of the discussions and there must be very valid reasons why such mergers could not be consummated and I believe after two unsuccessful attempts… but I can’t speculate,” he said.
As OCBC has a 63.5% stake in PacificMas following its takeover exercise early last year, BNM imposed a condition on OCBC that it could not own two insurance companies in Malaysia. PacificMas has until October this year to sell its insurance business.
Meanwhile, on the company’s performance this year, PacificMas chief executive officer Ng Hon Soon said: “We expect better profitability.”
He added the second quarter was expected to see the same performance as its first quarter ended March. For its 1QFY09, PacificMas registered a net profit increase of 200% year-on-year to RM8.4 million.