All stakes belonging to the British insurer Aviva in NDB – Aviva Insurance Plc will sell to a Hong Kong based insurance giant, theAmerican International Assurance (AIA) and exit the market, market sources said.
According to market sources, they have reached the final stages of negotiations for the purchase of 51% of the stake held by Aviva and bids have been approved. Therefore, the company had signed a Memorandum of Understanding (MoU) to go ahead with the transaction.
When the Daily News Business contacted Aviva Insurance, they declined to comment on it.
The NDB Bank through its subsidiary, the Capital Development and Investment Company (CDIC), controls a stake of 41.6 percent in Aviva NDB Finance Lanka (ANFL), while Aviva Asia Holdings owns the majority stake of 58.4 percent.
ANFL in turn, has a stake of 87.3 percent of Aviva NDB Insurance, while the NDB Bank independently has another stake of 5 percent. The company’s market value had been around Rs. 8.4 billion which would give Aviva’s a 51 percent stake, a valuation of Rs. 4.2 billion.
When bids had been called in July, seven parties had collected offer documents from Morgan Stanley in Hong Kong who was the investment bankers appointed to handle the deal, insurance sources said. Aviva NDB Insurance which is believed to be the second largest life insurer in Sri Lanka, generated Rs 12.8 million in revenue last year, earning a post-tax profit of Rs 691.6 million. With this development value of a share, which is likely to go up to a Rs 300 level at present, it is selling at Rs 240. AIA is a specialised insurance company mainly operating in Asian markets. With these developments, the share market would increase further, Lanka Securities (Pvt) Limited Research Analyst said. At the end, NDB directly and indirectly has about 41 percent of Aviva NDB Insurance, while Aviva Asia Holdings has about 51 percent. Now the question arises in the market circles whether the NDB will continue to hold their stakes or whether they would sell off their stakes as well to the buyer of the Aviva share.
It was also reported earlier, that the AIA Group, Prudential Plc and Manulife Financial Corp, were bidders for Aviva’s stake in the Sri
Lankan joint venture. However, some news sources said that a few local parties such as top business man Harry Jayewardene and the Janashakthi Group were also interested in it. But This is as part of Aviva, Britain’s second largest insurer’s announcement earlier to sell underperforming businesses globally, partly to raise money to protect against its euro zone exposure which is bigger than that of its rivals. Reuters news wire reported earlier.
NDB Bank will exit Aviva NDB Insurance by selling its shares to American International Assurance (AIA) following the planned exit of its partner British insurer Aviva who has already finalized its deal with AIA.
This deal goes through the price the NDB Bank would be getting for its stake is likely to be a staggering sum far above the current market value which is around US$ 15 million.
When Daily News contacted Aviva NDB General Manager (Marketing) Amal Perera reluctant to comment on this deal.
Aviva who has a majority stake of 51 per ecent in the local insurance company is believed to have already entered into an MoU for the sale of its stake to AIA. It is not clear whether the NDB Bank has entered into an agreement for the sale of its stake to AIA.
Our sources said that a team of officials from the Hong Kong based AIA was in Colombo last week negotiating with the NDB Bank for the purchase of nearly 41.14 percent stake in Aviva NDB Insurance held by the bank.
However well informed sources said that the general policy of AIA has been to somehow acquire the entire shareholding wherever they acquired insurance business with the exception of their operations in India where there is a restriction on foreign companies controlling insurance business.
The market analysts said that according to the owning structure of Aviva NDB where some of the stake holders which are NDB subsidiaries are not listed, question of a mandatory offer may not arise. The NDB Bank through its subsidiary Capital Development and Investment Company (CDIC) controls a stake of 41.6 percent in Aviva NDN Finance Lanka (ANFL) while Aviva Asia Holdings owns majority stake of 58.4 percent.
ANFL in turn has a stake of 87.3 percent of Aviva NDB Insurance while NDB Bank independently has another stake of 5 percent in Aviva NDB Insurance. However if AIA acquires stakes owned by both Aviva and NDB Bank it will end up owning more than 90% of the insurance company.
Depending on the company policy AIA may offer to buy the remaining float as well. Since inception in 1987, Eagle Insurance has been a major player in Sri Lanka’s insurance market. The company began operations as a subsidiary of Ceylon Tobacco Company (CTC) with technical collaboration from Eagle Star, UK.
When Ceylon Tobbaco Company (CTC) divested its financial services business in 1999 Eagle become a member of the global insurer, ZurichFinancial Services Group while National Development Bank (NDB) became the Company’s major local shareholder.
Zurich withdrew its operations from Sri Lanka in 2003 leaving NDB the majority control of Eagle with Bank of Ceylon being a key shareholder.
In 2006.Eagle became an Aviva Company. Today, Aviva and NDB, the major shareholders of AVIVA NDB Insurance have 51 percent indirect and 41.2 percent effective shareholding respectively. Reserch Analyst of Lanka Securities (Pvt) Limited said.