Hong Kong businessman Richard Li, the younger son of Asia's richest man, is buying ING's Hong Kong, Macau and Thailand insurance units for $2.14 billion in cash, bringing the Dutch financial services company a step closer to paying off its state bailout.
Li's bid, through unlisted Pacific Century Group, marks his return to an industry he exited in 2007 and would help expand his business empire, which is now made up of telecoms, media and funds management.
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He is paying 24.3 times estimated 2012 earnings for the three units. The transaction is subject to regulatory approvals and is expected to close in the first quarter of 2013, according to a statement from ING.
"What we really want to do is to expand the business regionally," Li, 45, told Reuters, walking by himself from the Citibank office tower toward downtown Hong Kong on Friday.
He previously owned a Hong Kong life insurance company, called Pacific Century Insurance (PCI), which he sold to Dutch and Belgian financial services firm Fortis in 2007.
Li said that when he invested in PCI, the business plan was very narrowly aimed at the Hong Kong market. "And then, after a while, we realized that this is a good business," Li said, referring to the overall insurance sector.
A source familiar with the sale process said that Li is interested in other insurance acquisitions and distribution agreements in Asia-Pacific.
Li's father, billionaire Li Ka-shing, is a legendary businessman and a rags-to-riches property tycoon. The family's business empire spans property, ports, power, water, supermarkets, drug stores and is spread across 52 countries.
In May Li Ka-shing named elder son Victor Li his formal successor but also pledged to continue to back the younger son's ventures.
Richard Li did not say how he plans to fund the acquisition but bankers are already betting he will participate in other insurance deals in the region.
"I will call him on every single sell-side I run," one Hong Kong-based M&A banker said.
DIVESTMENT PLAN ALTERED
The timing of Richard Li's comeback plans to the insurance business coincided with ING's need to shed assets to repay the 10 billion euro ($13.1 billion) state bailout it received during the 2008 financial crisis.
Last week, ING announced the sale of its Malaysian insurance business to AIA Group Ltd <1299.HK> for $1.73 billion in cash, helping it to strike its first deal in a nine-month drive to sell its Asian insurance and investment management assets.
AIA paid 14.3 times 2011 earnings for the Malaysian business. Insurers in Asia-Pacific on average trade at a 12-month forward multiple of 15.9 times, according to Thomson Reuters data.
With the latest deal, ING would be raising a total of $3.87 billion so far from its Asia exit plan, with the divestment of its much bigger Japan and South Korean operations still pending.
"It seems to be going well," Cor Kluis, an analyst at Rabobank, said on Thursday when Reuters reported the news of Li's purchase based on sources.
Kluis said he had expected the Hong Kong and Thai businesses to be sold for about 1.4 billion euros ($1.84 billion) and for the Asian insurance and investment assets to raise 6.1 billion euros in total.
Negotiations to sell ING's Japan and South Korean operations have been dragging on and it was not immediately clear when the sale of those two units would be announced.
Li has also bid for part of the Japan business though it was not clear if he was still interested in that. ING's South Korea unit is expected to be sold to KB Financial Group <105560.KS>, sources previously told Reuters.
ING launched the sale of its Asian insurance and asset management operations in March and had planned to find a single buyer for the insurance units, raising more than $7 billion.
With no single suitor emerging, the Dutch firm decided to break up the auction along different geographies.
ING shares were down 0.6 percent in Friday morning trade in a flat Amsterdam market . The insurer's shares are up 27 percent this year.
Li was a surprise bidder for ING's insurance operations, which had attracted interest from global insurers, including Metlife Inc and Manulife Financial Corp .
His purchase of the assets would shake up the sector less than if they had gone to another insurer.
"Richard Li coming in and doing this doesn't really change the market because there's no consolidation. It's just a new owner for the ING assets," Barclays Asia insurance analyst Mark Kellock said before the official confirmation of the deal.
Li has two key lieutenants advising him on his insurance and financial services business - Martina Chung Kit Hung, a former AIA employee, and Alvin Chooi, an ex-Temasek Holdings insurance specialist - separate sources told Reuters.
The purchase would give Li access to ING's 270,000 customers and 1,600 tied agents in Hong Kong and Macau, and its 300,000 customers and 4,000 tied agents in Thailand.
Li, who runs phone, pay-television and Internet company PCCW Ltd <0008.HK>, also hired HSBC to advise on the deal.
ING hired Goldman Sachs and JP Morgan to advise on the divestment.
(Additional reporting by Sara Webb in Amsterdam and Michael Flaherty in Hong Kong; Editing by Helen Massy-Beresford and Muralikumar Anantharaman)