The Insurance Australia Group Ltd (ASX: IAG) share price will be one to watch on Tuesday morning.
This follows the release of an announcement late this evening relating to a potential asset sale.
Why is the IAG share price on watch?
The IAG share price could be on the move tomorrow amid news that it could be selling its 49% interest in Malaysian business, AmGeneral Holdings Berhad.
According to the release, AmGeneral Holdings Berhad has signed an implementation agreement for the proposed sale of its insurance business to Liberty Insurance Berhad.
AmGeneral Holdings Berhad is the general insurance arm of the AMMB Group (AmBank), which owns the remaining 51% interest. Its wholly-owned subsidiary AmGeneral Insurance Berhad sells general insurance products under the AmAssurance and Kurnia brands.
Agreement terms
The reasonably complex implementation agreement will see Liberty Insurance Berhad acquire 100% of the shares in AmGeneral, with AmBank then holding a 30% interest in the insurance operations of both Liberty Insurance and AmGeneral. IAG isn't sticking around, though, and intends to exit its investment in AmGeneral.
The release explains that completion will be conditional on the Malaysian High Court approving a capital reduction and distribution of the sale proceeds to IAG.
At this stage, IAG's share of the sale proceeds will be $340 million. This will be payable in cash and subject to post-close adjustments.
What's next?
Pending regulatory processes and approvals, the transaction is expected to complete during IAG's financial year ending 30 June 2022.
IAG expects to incur a loss on sale of approximately $901 million. This will be recognised in its FY 2021 results as part of amortisation and impairment. This is due to the asset now being recognised as held-for-sale.
The sale is expected to result in an increase in IAG's regulatory capital position of approximately $150 million at completion.
