This article first appeared in The Edge Malaysia Weekly on October 21, 2019 - October 27, 2019

PRUDENTIAL Corp Holdings Ltd and The Prudential Assurance Company Ltd are suing Detik Ria Sdn Bhd and one of its shareholders, Tan Sri Abdul Rahim Din, over a dispute involving a 49% stake in Sri Han Suria Sdn Bhd (SHS).

SHS is the owner of Prudential’s licensee in Malaysia, Prudential Assurance Malaysia Bhd (PAMB). The shareholders of SHS are Detik Ria (49%) and Prudential Corp (50.99%). The remaining 0.01% is held by PCA IP Services Ltd.

In a nutshell, Prudential is suing Detik Ria and Abdul Rahim for allegedly refusing to part with the 40% stake in SHS.

According to a company search, Detik Ria is equally owned by Abdul Rahim and Negeri Sembilan royal Tunku Datuk Seri Shahabuddin Tunku Besar Burhanuddin. Only Abdul Rahim was named a defendant in the suit, along with Detik Ria.

The former secretary-general of the Ministry of Home Affairs and a director with Berjaya Corp Bhd (BCorp) until 2016, Abdul Rahim sits on the board of SHS.

According to Sept 17 and 18 court documents sighted by The Edge, on Feb 27, 2002, The Prudential Assurance Company and Detik Ria entered into a call/put option agreement whereby both parties agreed to grant various call and put options to each other in respect of the shares in SHS.

On Dec 15, 2008, Detik Ria issued a notice of exercise of option to sell its 49% stake in SHS to The Prudential Assurance Company for RM114.12 million.

However, on Sept 9, 2009, The Prudential Assurance Company and Detik Ria entered into a supplementary call/put option agreement where it was agreed that the completion date of the put option was deferred because the former was not able to complete the purchase of all the option shares at the time due to the prevailing regulatory policies in Malaysia relating to foreign shareholding.

Recall that in 2009, Bank Negara Malaysia set the threshold for foreign ownership of Malaysian insurers at 70%. At the time, the central bank said a foreign equity limit of more than 70% for insurers would be considered on a case-by-case basis for players who could facilitate the consolidation of the insurance industry.

The parties then entered into a supplementary memorandum of deposit where it was agreed that Detik Ria’s shares in SHS would be charged in favour of The Prudential Assurance Company and that Detik Ria was merely holding the 49% stake in SHS for and on behalf of Prudential Corp and The Prudential Assurance Company.

By virtue of the supplementary call/put option agreement, Detik Ria received an upfront payment of RM69.3 million. To date, the cumulative sum of the benefit it has received is RM109.2 million.

However, say the court documents, after nearly 10 years of receiving part-payment of the purchase price in the exercise of the put option, Detik Ria, in an April 30 letter, stated that it wished to rescind the exercise and maintain its 49% stake in SHS. It added that it will refund the total payment received plus interest at a reasonable rate.

In response, Prudential informed Detik Ria that the voluntary exercise of the put option in 2008 was valid and irrevocable and that no grounds existed for its rescission. It also stated that the Prudential group intends to complete the acquisition of the put option shares once the requisite regulatory approvals have been obtained.

In a June 10 letter to Prudential Corp Asia (which is Prudential plc’s group regional head office in Asia) and Detik Ria, Bank Negara said it had no objection to Prudential Corp’s application to complete the acquisition of Detik Ria’s 49% effective interest in PAMB with immediate effect.

In the same letter, the central bank said that in June last year, it was notified of Detik Ria’s intention to maintain its shareholding in SHS and had requested that the parties resolve the issue expediently.

On July 24, Prudential Corp Asia received a letter from Detik Ria that said the methodology for the computation of the put option price for the 49% stake as set out in the call/put option agreement and the amended supplementary call/put option agreement was misleading and unreasonable.

Detik Ria also said the valuation of its 49% equity interest should have been significantly higher and that it would retain the stake in SHS and repay Prudential the monies received following the exercise of the put option at a reasonable interest rate.

Detik Ria said it was prepared to pay Prudential RM1.766 billion, which it claimed was a fair price for the 49% stake in SHS.

Prudential responded to Detik Ria’s letter by stating that the latter had not provided any grounds to substantiate its allegation that the valuation of the shares was misleading and unreasonable.

Prudential also said that since Bank Negara had stated that it had no objection to the acquisition, the share transfer form and the director’s resignation letter had to be executed as soon as practical for the completion of the acquisition of the shares, and in compliance with the agreements drawn up by the parties.

On Sept 2, Prudential issued another letter to Detik Ria, demanding that it execute and return the share transfer form and the director’s resignation letter within 14 days of the date of the letter, failure of which will constitute a breach of contractual obligations on Detik Ria’s part.

To date, Detik Ria has failed to return the duly executed share transfer form and resignation letter, the court documents say.

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