FWD war chest talk after Richard Li sells HKT stake

Richard Li Tzar-kai is keeping the market guessing on his next move after a share transaction between two companies he controls has some observers on watch for another acquisition by the dealmaker. The deal boosted the coffers of FWD by HK$1.1 billion when the insurance group, in which Li is the controlling shareholder, sold its entire 1.6 per cent stake in HKT Trust and its operating arm HKT, the city's biggest telecommunications network operator. HKT Trust and HKT represent the telecommunications assets spun off by PCCW - chaired by Li - in November 2011. Li showed deft timing with the FWD stake sale in HKT; the price of HKT Trust's and HKT's stapled units had reached a record high HK$9.85 on Tuesday. According to media reports, the sale was made the following day, prompting a 5.08 per cent drop in the price of the units. A view in the market that the unlisted FWD may be building a war chest for acquisitions is supported by an attractive insurance environment in the regional market. Stella Ng, an insurance analyst at Moody's Investors Service, said: "We do see an increasing [merger and acquisition] trend and opportunities in Asian insurance companies." Ng said Taiwan presented potential, as the island's financial regulators were encouraging local insurers to expand in the region, particularly in Southeast Asia. Through his unlisted Pacific Century Group, Li bought the Hong Kong and Thailand operations of ING's life insurance business for more than US$2 billion in October 2012, marking a return to the industry he left in 2007 with the sale of Pacific Century Insurance to Fortis, a Belgian-Dutch insurance group. The business was renamed FWD in August last year. The company also offers services in Macau and the Philippines. Fuelling the market talk that the HKT divestment was motivated by Li's wish to put FWD on a better footing for potential acquisitions is the apparent sound financial position of the company. "As a mid-tier player in Hong Kong insurance market, FWD is nowhere short of cash or has any liquidity problems," Terence Wong, a director of Fitch Ratings, told the South China Morning Post, adding that the insurer had a solvency ratio of 241 per cent, well exceeding the minimum requirement of 100 per cent. Ng said FWD had been intent on branding itself as a customer-focused insurer, while leveraging the support of its strategic partners. Zurich-based Swiss Re, the world's second-largest reinsurance provider, invested US$425 million for a 12.3 per cent stake in FWD in October last year. The outlay put FWD's market value at more than US$3.5 billion, a handy margin on the US$2 billion that Li paid for the business just a year earlier. Perceptions in the market that FWD is positioning itself for acquisition opportunities also draw on the appointment of former Hong Kong stock exchange chairman Ronald Arculli as FWD chairman shortly after Swiss Re's investment. Observers had read into the move that Arculli's high profile would prove an asset in FWD landing potential acquisitions, particularly with his knowledge of the regional regulatory environment. While analysts see the Asian insurance market as presenting opportunities, it experienced a heightened round of activity in 2012, when British insurer Prudential bought Thailand's Thanachart Life Assurance for US$590 million and AIA sealed a US$1.7 billion acquisition of ING's Malaysian life insurance operations. Wong said the operating landscape in Southeast Asia had become more demanding because of higher capital requirements, which should create more joint-venture and partnership opportunities for overseas players. Arculli, a senior partner at law firm King & Wood Mallesons, had hinted that FWD was interested in possible acquisitions or tie-ups with life insurers in the region, in addition to growing the business organically. Arculli is also an independent non-executive director of the SCMP Group, which owns the South China Morning Post. Ranked ninth in Hong Kong by annualised premiums, FWD raised US$325 million in a 10-year bond issue last month to repay a US$500 million facilities agreement. The bond, paying an annual coupon rate of 5 per cent, drew a warm response from investors seeking exposure to a regional insurance company. The issuance also benefited from a shortage of bond offerings by Asian insurers. Wong said FWD was targeting customers looking for more comprehensive life insurance and health cover, including those with serious illnesses. This marks a gradual shift from savings plans and endowment insurance policies that it typically sells through bancassurance channels with partners such as Bank of Communications and Australian and New Zealand Banking Group. With this shift, the insurer aims to generate more business from 1,500 insurance agents in the city. "The strategy to focus on lucrative health-protect business aims to lift profitability rather than building a scalable insurance agency force, in which AIA and Prudential have natural advantage," Wong said.

FWD war chest talk after Richard Li sells HKT stake

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Analysts say Richard Li may be building war chest for acquisitions after his insurance company sells its entire stake in the telecoms operator

Analysts say Richard Li may be building war chest for acquisitions after his insurance company sells its entire stake in the telecoms operator