Monday, September 19, 2011

RPC likely to sell Asian Alliance stake

By Indika Sakalasooriya

As the mandatory offer by Softlogic Capital Limited to acquire the rest of the shares of Asian Alliance Insurance PLC (AAI) ends today, Richard Pieris group (RPC) is likely to sell its 25 percent stake in the insurance firm, Mirror Business reliably learns.

According to informed sources, RPC is likely to divest its stake in AAI considering the hefty capital gain it will obtain following the sale of shares. And also, RPC recently incorporated a company named Arpico Insurance Limited and is believed to have sought the regulatory approval to engage in insurance business.

However, RPC Chairman Dr. Sena Yaddehige was not available to obtain a confirmation.

If RPC sells its 25 percent stake to Softlogic Capital controlled by business figure Ashok Pathirage, the company will end up acquiring almost 100 percent of AAI, as it already has purchased 73.5 percent or 27,574,416 shares of AAI.

Meanwhile, it is widely speculated that, once Pathirage led Softlogic group gets the 100 percent of AAI, they will divest 35 to 40 percent of the company to an strategic investor.

The Independent Advisory Report done by Acuity Partners Private Limited recently said that the offer price of Rs.120 by the Softlogic in the mandatory offer is a ‘significant premium’ to the valuations and the market price of the AAI.

However, Ashok Pathirage, who is the Chairman and Managing Director of the Softliogic group, cast off this claim citing the synergies the AAI acquisition will bring to his group, which has extensive interests in healthcare and motor vehicle sectors.

“We want to create the biggest medical insurance company under the Softliogic umbrella,” Pathirage told Mirror Business.

Pathirage controls the Asiri Hospitals group, which is the largest private sector owned hospital chain in the country.

Pathirage also said that the acquisition was done based on the future earnings of AAI and he is planning to obtain an ‘Embedded Valuation’, which is generally used in valuing insurance companies, from either a Singaporean or Indian market research house.

“This will give a clear picture about why we went ahead with this acquisition,” he noted.

Acuity Partners has valued AAI share using three methodologies; P/BV based valuation, Dividend Growth model based valuation and P/E based valuation.

 According to the Price/Book Value (P/BV) valuation, the AAI share has been valued at Rs.77.49 and Dividend Growth model valued the share at Rs.65.26.

The P/E based valuation, on which many thought Softlogic went ahead with the deal, also showed a significant low valuation of Rs.79.17 compared to the buying price of Rs.120. The last traded price of the AAI share before the deal was Rs.119.80.

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