It was over nine months ago in December last year when Jerneh Asia Bhd, 37% owned by the Kuok group, first announced that it was entering into talks to sell its unlisted insurance arm Jerneh Insurance.
Jerneh Asia owns 80% of Jerneh Insurance while another listed company — Paramount Corp Bhd — owns the remaining 20%. Both parties had sought to dispose of their combined 100% stake in Jerneh Insurance.
Subsequently in May this year, Jerneh Asia announced that it had received Bank Negara Malaysia’s (BNM) approval to enter into an agreement with a potential buyer for the 100% stake in the insurance unit. The potential buyer was not named.
There has been no update since then.
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Jerneh Asia’s stock had risen steadily this year and breached the RM3 range last month hitting its 52-week closing high at RM3.46 on Aug 13.
The stock has since then eased to close at RM3.15 just before the Raya break on Sept 9. Prior to this, Jerneh Asia’s stock was trading at the RM1 range most of the time, and was thinly traded.
Market talk is that certain aspects of the deal are being re-looked at. “There is talk that certain matters on the valuation and business model of Jerneh Insurance have come up and may change some aspects of the deal,” said an industry source.
“That could be a possible reason as to why the deal is taking longer than normal to materialise. Usually, after submission to BNM for approval, it will take about two months to receive the official decision from the regulator and then the deal can start going into motion,” added the source.
Officials from Jerneh Asia were not available for comment.
While investors of Jerneh Asia continue to wait for progress on the deal, the potential buyer of Jerneh Insurance that is in advanced stage of negotiation remains a mystery.
In April, The Edge Financial Daily reported that some of the names bandied about included Italian insurance outfit Assicurazioni Generali SpA, HSBC and South Korea’s Samsung Fire and Marine Insurance Co. Interestingly, Generali and HSBC have strategic partnerships with Jerneh Asia.
On top of those names, another insurer — ACE Synergy Insurance Bhd — has come up in the insurance circles as the possible buyer of Jerneh Insurance. But, the identity of the buyer could not be confirmed still.
For the financial year ended Dec 31, 2009, Jerneh Insurance posted a net profit of RM54.69 million on the back of RM452.36 million in revenue. It had shareholders’ funds of RM291.29 million while its total assets stood at RM751.78 million and liabilities at RM460.5 million. The insurer had RM191.3 million in its reserves.
It is anybody’s guess how much could Jerneh Insurance be sold, based on its balance sheet strength. Nevertheless, some industry players believe a transaction today could be between 1.3 times and 1.8 times price-to-book value.
Market speculation had it that Jerneh Insurance could be sold for around RM700 million, which would price the insurance business at 2.4 times price-to-book, a valuation that industry players said was high.
Nonetheless, Hong Leong Financial Group Bhd had announced in June that it would sell its insurance arm Hong Leong Assurance Bhd (HLA) at 6.5 times price-to-book based on the company’s shareholders fund of RM458 million. The price was historically high but industry players point out that the 6.5 times price-to-book value is a combined value on both HLA’s general and life insurance businesses.
That aside, the valuation for past acquisitions/ disposals of general insurance business ranged from over one-to-two times net tangible assets.
Written by Kay
The Edge Malaysia
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