Oversea-Chinese Banking Corp announced that it bought 2.3 million shares of Great Eastern Holdings G07 for $16.99 apiece. The tranche cost $39.9 million. The purchase in the market takes OCBC O39 ’s stake in GEH from 87.9% to 88.4%. Market observers have indicated that the sellers are likely to be offspring of old-time shareholders, or as one investor put it “inherited old monies”. In effect, the children of a late Malaysian shareholder who do not reside in Singapore decided to sell their shares in a bloc.
After Citibank and HSBC nominees, the largest shareholders of GEH are the grandchildren of S.Q. Wong, the legendary former chairman of Overseas Assurance Company. Wong’s business interests were wide and varied. According to ISEAS Library, Wong's first investments were in mining and real estate, but soon expanded to include rubber, banking and insurance. Of course, Wong’s name was most closely associated with the Great Eastern life Assurance Company, the Overseas Assurance Company and OCBC. He sat on the boards of these companies, as well as the Kempas Rubber Company and Kuchai Tin Berhad until his 80s.
Presently, and mindful of the 10% free-float rule, investors in GEH are concerned that the purchase price on June 19 is at a significant discount to GEH’s embedded value of $37.81 per share in FY2022. This, in turn is 2% lower than FY2021’s $38.57.
Embedded value is the sum of the value of In-Force Business and the value of the adjusted Shareholders’ Funds. The value of the In-Force Business is calculated using cash flow assumptions for future operating experience and are discounted at a risk-adjusted discount rate. The value of the In-Force Business varies from traditional DCF methods to arrive at an NPV because the risk-adjusted discount rate and allowance for the cost of holding statutory reserves for risk are approximates.
The economic value of one year’s new business rose by 7.1% y-o-y in FY2022 to $860.4 million. However, shareholders’ equity fell by 6% to $9,431.4 million.
The closer OCBC’s stake gets to 90%, the stronger the likelihood of compulsory acquisition by OCBC. Interestingly, this comes at a time when life insurers elsewhere, such as FWD have expressed an interest in an IPO. In November last year, Bloomberg reported that Singlife with Aviva is eyeing an IPO.
See also: HSBC pulls back credit card business in China: Reuters
NTUC Income corporatised to become Income Insurance Ltd. In May, Income announced The Proposed Capital Reduction which aims to return $43 million to shareholders. This translates into a one-off distribution of around $0.40 cash per share to all Income Insurance shareholders. The capital reduction is intended to help shareholders with Income Insurance’s transition from a co-operative to a company, Income Insurance said.
Market watchers are keenly watching Income Insurance and some have suggested the corporatisation and capital return could be part of the path towards an IPO.
