Tuesday, June 7, 2011

Advance Synergy gets nod to sell insurance arm.


KUALA LUMPUR: Advance Synergy Bhd (ASB) shareholders have given the company the green light to sell its insurance arm at a mere 1.5 times book value — making it possibly the lowest valuation for such a transaction since the relaxation on foreign shareholding in the industry.

The proposal went through despite it being priced way lower than the recent transactions in the industry — which have been at 2.2 times to 3.3 times price-to-book (PB) value.

To recap, ASB’s unit Advance Synergy Capital Sdn Bhd (Ascap) had proposed to sell its 49% equity interest in Ace Synergy Insurance Bhd (ASIB) to Ace Ina International Holdings Ltd (AIIH) for RM117 million cash. At the EGM yesterday ASB sought shareholders’ approval for the disposal.

           CEO of ASB  Lee Su Nie Unlike other transactions, we are not selling a controlling block.

Last month, Berjaya Corp Bhd unit Berjaya Capital Bhd clinched a deal to sell a 40% stake in Berjaya Sompo Insurance Bhd to its Japanese stakeholder for RM1.24 billion, or 3.3 times book, setting a new benchmark for the industry.

Local insurers have been seeing increased mergers and acquisitions and have begun to attract foreign buyers after the government lifted the quota for foreign ownership to 70% from 40%.

Commenting on ASIB’s disposal, ASB CEO Lee Su Nie said one should not look at the valuation alone when judging whether the sale was a good deal as different transactions in the industry were made in different situations and circumstances.

“The economic scene is different now from that in 2007/08 and unlike other transactions, we are not selling a controlling block.

“You can’t consider only the valuation aspect of this deal,” said Lee after the company’s EGM in Shah Alam yesterday.

The proposed disposal of ASIB arrived from AIIH exercising the call option last February to purchase Ascap’s entire shareholding of 49 million shares or 49% of ASIB.

The call option was pursuant to the amended and restated shareholders’ agreement dated Jan 1, 2009 between ASB, Ascap and AIIH.

AIIH had informed of its intention to expand the operations of ASIB through M&A but Ascap did not want to commit further capital in ASIB or hinder AIIH’s expansion plans. Therefore, Ascap agreed to the call option.

However, the call option and its exercise was disputed by Ascap on the basis that it was not meant to be acted upon until the occurrence of the underlying transaction and upon Ministry of Finance (MoF) approval pursuant to Section 67 of Insurance Act, 1967.

The dispute was adjudicated by the courts in various legal proceedings between AIIH and Ascap.

After the courts ruled in favour of  AIIH, ASB proposed to seek approval from its shareholders yesterday to dispose of its 49% stake in ASIB.

On Sept 13, Ascap received a letter dated Sept 9, 2010 from Bank Negara Malaysia notifying it that the MoF had approved the proposed disposal without imposing any conditions on the company.

The valuation appears low for ASIB as it was based on its asset value more than three years ago (as at Dec 31, 2007). This compares with ASIB’s net assets as at Dec 31, 2010 of RM230.20 million.

The RM117 million price tag is about as much as ASB’s market capitalisation of RM115.06 million at its close yesterday of 23 sen.

It is also notable that Ascap’s original investment in ASIB in 2003 was RM71 million.

ASB plans to utilise more than half of the proceeds or RM61.6 million to repay borrowings, 47% or RM55 million for working capital and the remainder for the expenses of the exercise, which is expected to be completed by month end.

Lee said now that it has exited the insurance business, ASB plans to strengthen its core businesses, which includes hotels and resorts, travel and tours, property, and ICT.

ASB recorded a net profit of RM3.2 million for FY10 ended Dec 31 against RM30.9 million previously, while revenue came in at RM222.6 million compared with RM226.6 million previously.

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