(The author is a Reuters Breakingviews columnist. The opinions expressed are his own)
By George Hay
LONDON, Jan 23 (Reuters Breakingviews) - ING’s (ING.AS) disposal of its insurance arm keeps getting smaller. The Dutch bancassurer’s 2008 bailout left it needing to offload its entire insurance business, which it first planned to do via separate listings of the U.S. and Eurasian parts. Now it plans to hive off its Asian operations to dispose on their own. To get the best price, ING should do the splits one more time.
The simplest plan option might be to sell the whole thing to AIA (1299.HK). The former Asian arm of AIG listed in 2010 is sitting on $6 billion of surplus capital, and is keen to do acquisitions. A full sale of ING's Asian insurance arm could fetch more than $6 billion, according to Morgan Stanley. AIA could tighten up its balance sheet in the process.
But a full valuation may be hard to achieve. For one, ING may struggle to find rival bidders. Even though buying ING Asia would catapult AXA, Manulife and Allianz into the top tier of Asian insurers, ongoing euro zone troubles may deter some of them from major acquisitions overseas. Prudential (PRU.L) of the UK could be a contender, but may think twice given recent memories of its failed attempt to buy AIA.
The other snag is that few of the interested parties, including AIA, may want all of ING Asia. Pru and AIA seek exposure to emerging, high-growth Asian markets like Thailand and Vietnam. But three quarters of ING Asia’s gross premium income comes from mature markets like South Korea and Japan. A buyer like AIA might insist on a conglomerate discount.
ING might be better served splitting Japan, Korea and Malaysia up. AXA and Manulife in particular have minimal exposure to Korea. Meanwhile, it would be easier for Pru or AIA to justify a full price for to their shareholders if they were growing their presence in a target area.
The Dutch firm’s rush to meet its 2013 deadline to dispose of its insurance assets may be premature -– other recipients of 2008 bailouts are already lobbying the European Commission to allow disposal deadlines to be extended. But if the Commission won’t budge, ING shouldn’t fear one more split.
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-- AIA Group has invited four banks to pitch for advisory roles connected with a potential offer for ING’s Asian insurance business, Reuters reported on Jan 17.
-- Just under half of gross premium income at ING’s Asian insurance arm came from South Korea in 2009, Morgan Stanley analysts said on Jan 18. Just over a quarter came from Japan, 11 percent from Malaysia and 14 percent from other Asian countries.
-- ING’s Asian insurance operation currently has a book value of about 6 billion euros. As of the first quarter of 2011, AIA had $6 billion euros of surplus capital and no gearing, according to Morgan Stanley.
-- AIA had 4.2 percent of the non-Japan Asia market in 2010 judged by annual premium equivalent, according to Credit Suisse. Prudential had 3.1 percent. Allianz and ING had 1.6 percent each, Manulife had 1.1 percent, Great Eastern 1 percent and AXA had 0.7 percent.
-- ING shares have risen by over a quarter to 7 euros since early January, when it said it would be pressing ahead with plans to sell its Asian insurance arm separately.
-- ING statement: link.reuters.com/ner26s
-- Reuters: AIA sizes up bid for $6 bln ING Asia insurance unit - sources [ID:nL3E8CH1IB]
-- For previous columns by the author, Reuters customers can -- For previous columns by the author, Reuters customers can click on [HAY/]
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