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Prudential strikes deal to end 6-year court battle with Malaysian partners, including tycoon Vincent Tan
The British insurer has been embroiled in a legal dispute with a powerful set of Malaysian shareholders in a local joint venture.
The British insurer's partners in Malaysia include prominent businessman Vincent Tan Chee Yioun and members of Johor’s royal household. (Photo: Prudential Malaysia)
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KUALA LUMPUR: British insurance giant Prudential has reached an out-of-court settlement on a long-running shareholding dispute with its erstwhile partners in Malaysia, led by businessman Vincent Tan Chee Yioun of the Berjaya group of companies and including members of Johor’s royal household.
Financial executives and lawyers close to the deal told CNA that under a complex multi-million dollar settlement plan reached last week, the insurer is set to acquire an additional 19 per cent equity in Prudential Assurance Malaysia Berhad (PAMB) from a Tan-led Malaysian company called Detik Ria.
The proposed deal, which still requires regulatory approval from Malaysia - including from the Ministry of Finance and Bank Negara Malaysia, the country’s central bank - will see Prudential increase its holdings in PAMB to 70 per cent, up from 51 per cent.
Prudential and Detik Ria have been locked in a legal battle in Malaysia since 2019 over a dispute on their PAMB shareholdings and more recently, over dividend payments.
Detik Ria will retain the remaining 30 per cent interest in PAMB following the proposed sale to Prudential.
Detik Ria has begun talks with local institutional investors with the view to exit its equity interest completely from PAMB, the financial executives and lawyers added.
Pricing details remain sketchy, but two financial executives told CNA that the deal between Prudential and Detik Ria, which also features an out-of-court settlement of the shareholders’ dispute over dividend payments, could amount to over RM850 million (US$201 million) in total for Berjaya’s Tan and his partners.
“This deal will end all litigation and both parties have resolved all matters to the joint venture,” said one senior financial executive close to Berjaya’s Tan.
Malaysian media have reported on the shareholder dispute previously, but not on the latest settlement and the planned disposal of the equity interest by Detik Ria in PAMB.
Tan declined official comment for this article, but financial executives close to the businessman said that an announcement would be made after the Malaysian regulatory approvals are obtained.
Executives of Prudential also did not respond to CNA’s queries regarding the company’s plan to raise its interest in PAMB to 70 per cent, which is the maximum foreign entities can own under rules set by the Malaysia government.
If approved, the deal will give the multinational company firmer control over its Malaysian operations vested in PAMB.
A senior Prudential executive from the company’s headquarters in London did hint at a complete settlement to the fight with Detik Ria when contacted by CNA last week.
Prudential had filed a lawsuit in Malaysia against Detik Ria in 2019 over a shareholding dispute.
This stems from a move by Detik Ria in 2018 to rescind an earlier agreement it entered with Prudential in 2008 to sell its entire interest in PAMB.
By the time Detik Ria sought to back away from the sale, the company led by Tan had already received roughly RM109 million of the total disposal price tag of RM114 million.
Prudential’s suit sought to enforce the disposal agreement by Detik Ria and the insurer subsequently received judgments in its favour from Malaysia's High Court and Court of Appeal.
However, the Federal Court, Malaysia's apex judicial institution, ruled in July 2024 that the agreement was not valid without the approval from the Ministry of Finance.
In April, Prudential filed for a review of this ruling claiming procedural illegality and denial of justice, but this final bid for full ownership of PAMB was rejected by a different Federal Court panel of judges in June.
Meanwhile, Detik Ria filed a fresh suit in late April against Prudential seeking a settlement of US$833 million over disputed dividend payments for its equity in PAMB.
But this dividend payment dispute was also resolved last week, with Prudential announcing last Thursday (Jul 31) that it will pay US$83 million to Detik Ria as settlement.
The insurer also agreed to waive a US$33 million debt owed by Detik Ria under the settlement agreement, which Prudential said in a statement represents a “full and final” resolution to the Malaysian firm’s April suit filed in the High Court.
“The settlement of this case does not impact Prudential’s control in respect of PAMB and its operations, nor does it affect our service commitment to our customers,” the Prudential statement added.
It is unclear why Detik Ria settled for roughly 10 per cent of what it was demanding in its legal action.
CENTURY-OLD PRESENCE AND CONVOLUTED CORPORATE SETUP
The agreement between Prudential and Detik Ria ends one of the longest and closely scrutinised corporate battles in recent history in Malaysia because of legal uncertainties and questions over regulatory complexities it raised on cross-border joint ventures.
Prudential, which is listed in the United Kingdom and Hong Kong stock markets, began operations in what was then known as Malaya in 1924, before the country’s independence in 1957.
In 2002, the company opted to firmly establish its roots in Malaysia by entering into a joint venture with Detik Ria to comply with the local shareholding guidelines under Malaysia’s New Economic Policy.
The 20-year policy, which began in 1970, essentially called for at least 30 per cent of the nation’s corporate equity to be in the hands of bumiputras - defined as races indigenous to Malaysia and primarily ethnic Malay.
After its expiration in 1990, the policy was replaced by other programmes favouring ethnic Malays in areas of education, senior civil service positions and access to economic opportunities.
Prudential settled for one of Malaysia’s most politically well-connected businessmen, Berjaya’s Tan, as its partner.
At the time, Tan, who left school at 16 to become a bank clerk by day and sell life insurance part-time by night, had established himself as a highly influential businessman during the more than two-decade premiership of Mahathir Mohamad that began in 1981.
Berjaya was by then one of Malaysia’s largest conglomerates with diversified interests in property, hospitality, gaming, telecommunications and consumer marketing.
Tan continues to lead the company, which recently secured rights to roll out Malaysia’s second 5G mobile network.
Like most corporate deals that are structured to navigate the many complexities of local shareholding requirements, the Prudential-Detik Ria setup was convoluted.
According to court filings widely reported in the Malaysian media, both parties set up a private firm known as Sri Han Suria that would act as holding company for PAMB.
Prudential held a controlling 51 per cent interest in Sri Han Suria, while Detik Ria, which is led by Tan and has nine other shareholders with close ties to the businessmen, held the remaining 49 per cent.
Another prominent shareholder in Detik Ria is Persada Majestik, a private company wholly owned by Tunku Tun Aminah Sultan Ibrahim, the daughter of Malaysia’s King Sultan Ibrahim Sultan Iskandar. Sultan Ibrahim is also the head of the Johor royal household.
OTHER FOREIGN PLAYERS
According to international analytics firm Global Data, Malaysia's general insurance industry is forecast to grow at a compound annual growth rate of 7.8 per cent from RM22.6 billion in 2024 to RM30.5 billion in 2028, in terms of direct written premiums.
The sector has also long been dominated by foreign players and regulator Bank Negara has been pushing for a consolidation of the industry through mergers with local players since the late 1980s.
Two of the country's largest players, AIG and Great Eastern Group, remain wholly owned entities of their United States and Singapore corporate parents respectively.
They have long resisted complying with the shareholding caps, which require a minimum of 30 per cent local participation that Bank Negara, Malaysia’s central bank, has been trying to enforce, though it grants exemptions on a case-by-case basis.
One reason that these groups have managed to temporarily fend off shareholder restructuring efforts is simply because there are not many companies apart from large government-owned institutions that have the financial heft to take on the role as partners.
Insurance industry executives say that both AIG and Great Eastern have also long insisted in their private consultations with the government that their licences to operate in Malaysia pre-dated the New Economic Policy.
Newer entrants to the Malaysian insurance market have generally complied with the restructuring initiative.
Foreign firms, such as Allianz Malaysia and Manulife Holdings, have chosen the route of listing on the Malaysian stock market to comply with the local shareholding ruling set by Bank Negara.
