KUALA LUMPUR (NewsRise) - Hong Leong Financial Group, a banking group controlled by Malaysian tycoon Quek Leng Chan, has called off talks to sell stakes in its insurance units as it could not reach a deal with the potential buyers.
The company and its unit HLA Holdings' had six months to negotiate a deal with "certain parties" to sell a stake in life insurer Hong Leong Assurance, and Islamic insurer Hong Leong MSIG Takaful, Hong Leong Financial had said in June.
Hong Leong Financial and HLA Holdings "could not reach an acceptable commercial agreement" with negotiating parties approved by Bank Negara Malaysia, the company said. Both sides mutually agreed to cease negotiations, Hong Leong Financial said without elaborating further.
HLA Holdings has a 70% stake in Hong Leong Assurance and holds 65% in Hong Leong MSIG. The rest of the stakes in both the companies are held by Japan's Mitsui Sumitomo Insurance Co.
Malaysia's banking regulations require the country's central bank to approve major changes in shareholding or acquisition of a financial services company. Bank Negara Malaysia also regulates the insurance industry, while an operator requires a license from the Minister of Finance.
Hong Leong Financial is part of the Hong Leong conglomerate that runs businesses ranging from manufacturing to property development in Cambodia, China, Hong Kong, Singapore, Vietnam and the U.K.
A successful sale of the insurance units, which contributes less than 10% of its annual earnings, would have led to an increase in valuation of Hong Leong Financial, analysts have said.
"We believe that the parties to the negotiation could not come to an agreement on pricing," said AmInvestment Bank's analyst Kelvin Ong. He has cut the stock's target price to 17.60 ringgit from 18.10 ringgit following the deal talk collapse.
Banks across the world are facing tougher capital requirements aimed at boosting their resilience following the 2007 global financial crisis. That has prompted some lenders to trim assets and sharpen focus on core activities by selling unprofitable businesses or exiting less lucrative markets.
Hong Leong Financial's net profit fell 16% in the fiscal year ended June 30 in-part due to higher operating cost at its commercial banking unit that booked one-off expense of 172 million ringgit for a staff reduction program. Meanwhile, profits at HLA Holdings also fell largely due to higher expenses.
Shares of Hong Leong Financial fell 1.4% to 15.22 ringgit, while the benchmark FTSE Bursa Malaysia KLCI ended 0.1% higher.