Source says Lippo Life to sell majority stake
Source says Lippo Life to sell majority stake
SINGAPORE (Reuters): A deal to sell a majority stake in Indonesian insurer PT Asuransi Lippo Life may be finalized in two weeks, a source familiar with the deal said on Thursday.
Insurance sources said the price tag was between two and three trillion rupiah ($250-$370 million), based on the value of existing business and future income projections.
"There is a very good chance of a transaction taking place within the next couple of weeks," the source told Reuters.
"The intention is that the sale will be for a controlling stake," the source added, making it the first major foreign deal in Indonesia's insurance sector since the Asian crisis.
Merchant bank Warburg Dillon Read, which has been advising Lippo Group on the sale of a stake in its insurance unit since late last year, declined to comment on the position of talks.
Lippo Life executives were unavailable for comment, but an informed source told Reuters on Tuesday the firm was ready to sell a strategic stake.
Industry players said initial plans were for a sale of a minority stake, but bidders would want control.
Indonesia allows foreigners to own up to 80 percent of joint venture insurance companies.
The source said Warburg had issued an offer document to between 15 and 20 would-be investors at the turn of the year, mainly to insurers with an eye on Asian acquisitions.
These were thought to include Germany's Allianz, France's AXA, Australia's AMP as well as top U.S. insurer, American International Group (AIG).
AIG, which already has one life insurance joint venture in the vast Indonesian archipelago of 210 million people, was regarded as the frontrunner.
AIG has money to spend in emerging markets and would like the firmer grip that a tie-up with Lippo -- the second largest local player with a market share of about 18 percent and annual premium of about one trillion rupiah in 1998 -- would offer in Indonesia.
Allianz on the other hand has been concentrating on mature markets like South Korea and Taiwan, while AXA is busy digesting the acquisition of Britain's Guardian Royal Exchange Guardian does not have a life operation in Indonesia and has no significant life interests in the region.
AIG would want control, but is known not to pay top dollar prices while the Lippo Group -- which has already rejected one offer it considered too low -- was holding out for every penny it could get, the source said.
Agreeing a price has been one of the toughest stages of negotiations as normal assumptions about asset values have been shattered by Indonesia's worst economic crisis in three decades.
Future income projections have also been damaged and the company's substantial portfolio of U.S. dollar-denominated policies has been another stumbling block, given the rupiah's huge fall in value against the greenback during the crisis.
The deal separates Lippo Life's insurance business from its asset base, with existing business transferred to a new company that would underwrite all future Lippo Life business.
Lippo Group would deliver assets, mainly cash or cash equivalents, to back the liabilities of existing policies and meet insurance solvency requirements.
The source said Lippo Group would retain a minority holding after the sale of the new entity to a foreign partner.
This ensures the new firm gets access to the huge 350-branch distribution network of Bank Lippo Tbk, a big carrot for the potential buyer.
The sale of Lippo Life would help raise funds needed for Rp 3.75 trillion recapitalization of Bank Lippo, in which the insurer was a major shareholder, the source said.