Prudential’s recent announcement regarding its recognition of a 49% minority stake in Sri Han Suria Sdn Bhd (SHS), its Malaysian subsidiary, has tempered analysts’ growth expectations for the Malaysian market. This decision has led to a nearly 5% reduction in Prudential’s IFRS equity and approximately 4% decrease in its embedded value, according to Jefferies Equity Research. Previously optimistic forecasts for Malaysia’s growth now face dampened prospects, altering the company’s risk profile.
Despite the substantial impact on Prudential’s financial metrics, market response has been subdued. Jefferies observes that investors appear more attuned to macroeconomic and geopolitical uncertainties, somewhat overlooking company-specific developments. This trend underscores a broader market tendency to discount fundamental news, although Jefferies anticipates a potential revaluation of fundamental valuations in the future, the timing of which remains uncertain.
Prudential currently holds a 51% stake in SHS, which in turn owns Prudential Assurance Malaysia Berhad (PAMB), with Detik Ria Sdn Bhd holding the remaining 49%. The ownership structure and recent legal developments have complicated Prudential’s financial reporting, with the Federal Court of Malaysia overturning earlier rulings related to Prudential’s acquisition options and ownership dispute with Detik Ria.
As a consequence, Prudential will now classify the 49% stake as a non-controlling interest, impacting its IFRS equity and European Embedded Value metrics without affecting day-to-day operations or its Takaful business. The Federal Court’s decision emphasized the necessity of both central bank approval and the finance minister’s endorsement under the Insurance Act of 1996, a requirement that has contributed to the ongoing legal dispute and financial adjustments.
In response to the court’s decision, Detik Ria has been instructed to reimburse $24.0 million (RM109.205 million) in partial payments plus 5% interest since September 2019, with Prudential also liable for legal costs totaling $43,881.4 (RM200,000). Detik Ria contends that dividends accrued during this period amount to $600 million (RM2.72 billion), asserting a total owed of $290 million (RM1.3 billion) for its 49% stake in the company.
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