* Acquisition to boost AIA's Malaysia ranking to No. 1
* ING's first deal in Asia asset sell-off
* AIA to fund purchase with internal reserves and debt
* AIA reports 22 pct rise in new business in Q3
(Adds AIA, analyst comments, details)
By Denny Thomas and Sara Webb
HONG KONG/AMSTERDAM, Oct 11 (Reuters) - Pan Asian insurerAIA Group Ltd has agreed to buy ING's Malaysianinsurance operations for $1.73 billion in cash, handing theDutch financial services firm its first deal in a nine-monthdrive to sell off Asian assets.
The sale of the Malaysian unit is expected to be followedsoon by the divestment of ING's Japan, South Korea, Hong Kongand Thailand units, as the bailed-out Dutch financial firmoffloads assets to repay 10 billion euros ($12.9 billion) instate aid received during the 2008 financial crisis.
For AIA, the purchase of the Malaysian operations marks itssecond M&A deal in less than a month, and gives it a leadingposition in the fast growing Southeast Asian economy.
AIA was spun out of U.S. insurer AIG in 2010 througha $20.5 billion IPO, and Hong Kong-based CEO Mark Tucker hasbeen re-building the business after it lost agents and marketshare amid AIG's near collapse during the financial crisis.
"It's a good deal and they are paying up to buy a goodquality business and to expand into a rapidly growing market,"said Credit Suisse analyst Arjan van Veen, describing ING'sMalaysian business as the "jewel in the crown".
AIA said it was paying a multiple of about 1.8 timesembedded value for the Malaysian business, compared with AIA'sown multiple of 1.5 times. Van Veen said the deal should add 5percent to AIA's earnings per share.
Embedded value is a measure commonly used to gauge the valueof insurance companies and includes the present value of futureprofit from long-term insurance contracts.
The deal, which confirmed a report by Reuters on Wednesday,marks ING's first sale after it announced plans to auction itsAsian insurance operations in January as part of a global assetsell-off programme.
ING originally wanted to sell its entire Asia insuranceoperation, with a book value of 6.1 billion euros, to one buyerbut said it was willing to split up the business if it couldraise more money that way.
"Today's announcement is the first major step in thedivestment of our Asian insurance and investment managementbusinesses and shows that ING continues to make steady progressin the restructuring of our company," said Jan Hommen, chiefexecutive, in a statement.
STRONG DEMAND FOR SOUTHEAST ASIA
ING's Southeast Asian operations attracted bidding interestdue to the region's rapid growth potential. Life premiums inMalaysia are forecast to grow at 5.5 percent next year, comparedwith a world average of 3.7 percent, according to Swiss Reestimates.
The race to buy ING's Japan, Hong Kong and much smallerThailand operations is still on, with Canada's ManulifeFinancial Corp and Hong Kong business tycoon Richard Liin the running, a source told Reuters earlier.
KB Financial Group is in advanced talks to buyING's South Korean operations, sources have told Reuters.
AIA said the Malaysian deal, which is subject to regulatoryapproval, would boost its ranking in Malaysia to No. 1 by totalpremiums.
"ING's business in Malaysia represents an excellentstrategic fit with AIA where we already have a well-establishedand strong business and the ability to integrate ING'sbusinesses with our own," AIA CEO Tucker said in a statement.
The deal would also strengthen AIA's bank distributionchannel, an area analysts believe AIA needs to beef up. Theacquisition will be funded through internal cash resources anddebt financing, the statement said.
AIA also announced a 22 percent rise in its value of newbusiness to $300 million.
Last month, AIA agreed to buy British insurer Aviva Plc's
Sri Lankan operations for $109 million. .
ING's Malaysia business sells life, general, and Islamicinsurance products and has about 1,200 employees and over 1.6million customers.
ING said it expects a net gain of about 780 million eurosfrom the transaction, which is expected to close in the firstquarter 2013.
AIA was advised by Deutsche Bank and Morgan Stanley, whileGoldman Sachs and J.P. Morgan advised ING. Debevoise & Plimptonis AIA's financial adviser.
($1 = 0.7751 euros)
(Additional reporting by Saeed Azhar and Clare Baldwin; Editingby Gary Hill, Carol Bishopric, Michael Flaherty and RichardPullin)
Keywords: ING AIA/MALAYSIA