OCBC, UOB should privatise listed insurance arms Great Eastern and United Overseas Insurance
IN EARLY March, Singapore-listed Great Eastern Holdings (GEH) dismissed a request by a minority shareholder, acting on behalf of a group of minority investors, to table three ordinary resolutions at the insurance provider’s annual general meeting (AGM), which will be held on Apr 25.
The proposed resolutions call for withholding part of board of directors’ fees, changing the executive share option schemes, and appointing an independent financial adviser.
Lying behind the actions of the minority shareholder are concerns over GEH’s depressed share price.
The Securities Investors Association (Singapore) also urged GEH’s board to seriously and objectively consider the true purpose of the requests, instead of avoiding them on legal grounds.
On Mar 28, GEH said in an announcement that its board and management understand the concerns expressed by the minority shareholder, and are prepared to discuss these at its upcoming AGM.
Maybe it’s an opportune time to cut to the chase – banking giant OCBC , which owns about 88 per cent of GEH, can resolve concerns over GEH’s share price by privatising the insurance group.
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Banking peer UOB , which holds a deemed interest of about 58 per cent in Singapore-listed insurance group United Overseas Insurance (UOI), could likewise create value for UOI’s shareholders by privatising it.
The two Singapore lenders can emulate Tokyo-listed Isetan Mitsukoshi, which this week announced a bid to take its majority owned locally listed Isetan Singapore private at a premium of 154 per cent to the last traded price pre-announcement.
Great Eastern
GEH’s net profit for 2023 rose 27 per cent to S$774.6 million. Including the proposed final dividend, GEH’s dividend per share (DPS) for 2023 totalled S$0.75, versus S$0.65 for 2022.
As at Apr 3, GEH traded at a premium to end-2023 net asset value (NAV) per share of 9.8 per cent.
However, the true value of GEH, which was founded in 1908 and is a leading life insurance group in Singapore and Malaysia, may be better captured by its embedded value (EV).
EV is a common valuation measure of life insurance companies that among other things includes the current value of projected future profits from in-force policies.
GEH traded at about half of its 2023 EV per share of S$36.59 based on the share price as at Apr 3.
Possibly, OCBC can offer GEH’s minority shareholders an exit at a premium to today’s share price and a discount to EV.
Given GEH’s small free float, its share price performance is likely hampered by insufficient trading liquidity.
If GEH’s minority shareholders swap their GEH shares for shares in OCBC, they will own shares in a counter that trades better and offers superior dividend yield.
As at Apr 3, OCBC traded at a 15.6 per cent premium to its end-2023 NAV per share. Including the proposed final dividend, OCBC’s DPS for 2023 amounts to S$0.82.
Based on the share price as at Apr 3 and DPS for 2023, OCBC’s dividend yield of 6 per cent tops GEH’s 4.1 per cent.
United Overseas Insurance
Meanwhile, UOI, whose principal activities are the underwriting of general insurance business and reinsurance, traded at a discount of 17.1 per cent to its end-2023 NAV per share based on its latest share price as at Apr 3.
In contrast, UOB’s share price as at Apr 3 was at a premium of 13.6 per cent to its end-2023 NAV per share.
Based on DPS for 2023 including proposed final and special dividends where applicable and share prices as at Apr 3, the dividend yield for UOB and UOI are 5.8 per cent and 3.5 per cent, respectively.
If UOI’s minority shareholders swap their UOI shares for UOB shares at book value, they will realise value for their shares, and hold shares in a group that trades better as well as has higher dividend yield.
Ultimately, there is little need for subsidiaries of major listed groups to be separately listed unless such units command good valuations. After all, considerable costs are incurred in maintaining a listing, such as compliance costs and time spent on investor relations.
GEH and UOI are well-regulated businesses with long track records, consistently profitable and dividend paying, even during the Covid-19 pandemic. OCBC and UOB should be happy to own all of the said groups.
As privately held entities, GEH and UOI can dispense with listing-related burdens, and instead focus their resources and attention on their businesses, investments and operations.
Meanwhile, OCBC and UOB can exercise greater control and management flexibility over their privatised insurance subsidiaries in order to optimise resources across the insurance entities’ businesses, investments, operations and corporate structure.
Sure, any privatisation attempt involves risk. For example, a scheme of arrangement to privatise an entity may need the approval of 75 per cent of minority investors. And failed privatisation exercises waste management time as well as incur costs.
Given economic uncertainties and other pressing business issues, tidying corporate holdings through privatising their locally listed insurance entities may not rank high on the board agendas of OCBC and UOB.
Nonetheless, privatising GEH and UOI benefits both the insurance groups and their banking parents. Crucially, OCBC and UOB can demonstrate good corporate governance by helping minorities in their listed insurance arms realise value.
Should the banking parents make fair offers for their insurance subsidiaries, this will be cheered by shareholders of OCBC, UOB, GEH and UOI.
The writer owns shares in GEH, OCBC and UOB
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