TAIPEI (Reuters) - Taiwan’s China Life (2823.TW) will buy most of Prudential Plc’s (PRU.L) local insurance business, with the UK firm taking around a 10 percent stake in China Life, valued at T$2.18 billion ($64 million), the companies said.
The sale by the UK’s No.2 insurer comes as global financial giants look to raise cash to shore up their positions at home amid a sharp economic downturn and credit crisis.
Dutch ING Groep ING.AS has sold its Taiwan unit to Fubon Financial (2881.TW) for US$600 million, and Aegon (AEG.N) (AEGN.AS) is looking to raise T$4 billion from the sale of its local unit, media has reported.
AIG (AIG.N) is also trying to find a bidder for its Taiwan life insurance business, Nan Shan Life, though sources have said it may be asking too high a price.
Prudential, with a 2.76 percent share by total premium of the Taiwan market, posted losses there in three of the last four years.
In exchange for the bulk of Prudential’s PCA Life Assurance Co unit, China Life said it would issue 145.5 million new shares and sell them to Prudential for T$15 each.
Prudential will retain its banking channels and telemarketing business in Taiwan.
“It’s at market value. It’s an investment in China Life. It’s an investment in our continued belief in Taiwan and the agency system there,” Prudential CEO Mark Tucker told reporters on a conference call in London.
Prudential’s IGD (Insurance Group Directive) surplus will rise to 2.5 billion pounds after including a net increase of about 800 million pounds on completion of the Taiwan transfer.
“This will also improve the EV (embedded value) by 90 million pounds, which we believe is a very good deal given falling interest rates in Taiwan,” said JPMorgan in a research note to clients.
HSBC (0005.HK) acted as sole financial adviser for Prudential.
Prudential earlier said it posted 5 percent growth in group insurance sales for the year, to 3.024 billion pounds.
Prudential had a T$4 billion net loss in the nine months to September, following a 2007 loss of T$3.1 billion and a T$882 million loss in 2005. It made a T$2.2 billion net profit in 2006, according to the website of its Taiwan unit.
But Barry Stowe, chief executive of Prudential Asia, said the firm remains confident in the Taiwan market, “because it’s a very important market in Asia as we continue to build our Asia growth story.”
“Taiwan is among the top two or three best performers in Asia after South Korea and India,” he told Reuters.
By 5:16 a.m. EST, Prudential shares were up 6.1 percent at 272.25 pence in London trading. China Life closed down 4.6 percent at T$11.35 before the announcement.
(Additional reporting by Ben Deighton in London)
Editing by Ken Wills & Ian Geoghegan