Australia's IAG to buy into Kurnia unit

Kurnia likely to announce sale of a stake in KIMB to the Australian insurer this week
PETALING JAYA: General insurance company Kurnia Asia Bhd will likely announce its decision to sell an equity stake in its wholly-owned subsidiary Kurnia Insurans (M) Bhd (KIMB) to Insurance Australia Group (IAG) this week.
Sources told StarBiz
that Kurnia was finalising a deal to dispose of an equity stake in its
general insurance business to the largest general insurer in Australia
and New Zealand.
However, it is not known how much the deal would
cost the Australian insurer, which had been eyeing to expand its
business presence in Asia. (Foreign ownership in Malaysian insurers is
currently capped at 70%.)
It was speculated that Kurnia would probably sell KIMB at around 2.5 to three times the book value of the company.
Based
on a net tangible asset value of about RM720mil as of March 31, 2011,
that deal would work out to be around RM1.8bil to RM2.2bil.
Kurnia's
debt stood at RM360mil as at the end of Sept 30, 2011, while its cash
reserve stood at RM97.7mil, up from RM38.8mil as at end-December 2010.
It
is learnt that Kurnia would be using the proceeds from the sale to
either venture into a new business, acquire new assets or manage the
cash to generate returns.
The top management in the company would
be meeting within the next few days to decide on the matter, and an
announcement on the deal would be made towards the end of this week.
In
its recent report, OSK Research said Kurnia's share price would likely
get a boost from the impending merger and acquisition deal.
It had a “trading buy” call on Kurnia, with a fair value of 68 sen being the potential book value after the sale of KIMB.
RHB
Research, on the other hand, had a “market perform” call on Kurnia,
ascribing a fair value of 51 sen, while TA Research recommended “buy”
with a target price of 56 sen. Kurnia lost 1.5 sen to close at 52 sen
yesterday.
During the nine months to Sept 30, Kurnia achieved a
net profit of RM37mil on revenue of RM869mil, compared with a net profit
of RM23mil on revenue of RM816mil for the corresponding period last
year.
The company attributed its earnings growth during the
period under review to stronger underwriting performance, which was
offset by the impact of the weaker investment environment especially
during the third quarter of the year.
Non-motor segment accounted for 21% of the group's overall business portfolio, while the remainder came from the motor segment.
Besides KIMB, Kurnia also has insurance businesses in Indonesia and Thailand. It also has operations in Cambodia.
IAG has businesses in Australia, New Zealand, the United Kingdom and Asia.
In Malaysia, it owns a 49% stake in AmG Insurance Bhd, the general insurance arm of AmAssurance.
IAG underwrites about A$8bil (RM25.64bil) of insurance premiums each year and employs about 13,000 people.
High
on the group's priority list is a strategy to boost its footprint in
Asia, so that the region could deliver 10% of the group's gross written
premium by 2016, from the 2% currently.