HONG KONG (Reuters) - Asian insurer AIA Group Ltd (1299.HK) has emerged as the front-runner to buy ING's ING.AS Malaysia and Thailand insurance operations, sources with knowledge of the matter said, in a deal that could be worth about $2 billion.
AIA's purchase of ING's Southeast Asian business would be a key step forward in the Dutch group's long and complicated effort to auction off its Asia business.
"AIA has made some headway and they are already engaged with the regulators," said one person familiar with the discussions.
Malaysia and Thailand could be the first piece sold in ING's Asia divestment plan, which was launched earlier this year. ING originally had wanted to sell the whole Asia insurance operations, which has a book value of 6.1 billion euros ($7.8 billion), to one buyer.
Hopes for that, however, faded after ING failed to attract a suitor for the entire Asian piece, forcing the company to auction off its Asia group in parts.
ING officially launched the sale of its Asian insurance and asset management operations in March, though the process was long in the making. ING has been forced to sell assets after it was rescued by the Dutch government with a 10 billion euros ($12.8 billion) bailout during the 2008 financial crisis.
AIA is a former unit of U.S. insurer AIG (AIG.N), itself the recipient of a 2008 government bailout, which at one point ballooned to $182 billion. AIA, dragged down by AIG's woes, was spun off from its parent in a 2010 IPO.
It is now Asia's third-largest insurance company, and is moving quickly to expand its reach. AIG has kept an ownership stake in AIA, which has been whittled down to 13.7 percent.
ING is in advanced talks with AIA, though the two are not in exclusive talks yet, the sources said. The final negotiations with AIA could still break off and there was no certainty that AIA will eventually buy the Malaysia and Thailand units, they added.
ING has set no internal deadline to announce winners of different parts of its Asian insurance operations, one of the sources added.
If successful, the deal will be a major coup for AIA CEO Mark Tucker, who was put in charge by AIG CEO Robert Benmosche ahead of the Asian insurer's mammoth IPO.
The sources declined to be named as the sale process was confidential.
AIA and ING declined to comment.
Should AIA acquire the Southeast Asia business, four parts of ING Asia would still remain to be sold.
Canada's Manulife Financial Corp (MFC.TO) and a consortium led by Hong Kong businessman Richard Li are slugging it out for ING's Hong Kong operations, the sources said, which is expected to fetch about $1 billion. The two are also in the running to buy parts of ING's Japan operations, the sources added.
ING's South Korean business and its Asian asset management arm are also being sold in separate processes. ING is close to announcing the sale of its South Korea unit, sources said, which is valued at about $2.2 billion.
The Asia sale process for ING has been impacted by the global economic slowdown and complex regulatory hurdles across its Asian jurisdictions.
ING was in late-stage talks to sell its Japanese life insurance business to Richard Li, the Nikkei daily reported over the weekend. That bolsters Li's chances of winning the Hong Kong business as well, the sources said.
Li, son of Asia's richest man, Li Ka-shing, previously ran an insurance business in Hong Kong, which he exited in 2007 by selling a controlling stake to Dutch and Belgian financial services firm Fortis.
Spokesmen for Richard Li and Manulife were not immediately available for comment.
ING has to sell its insurance business globally before end 2013 to comply with the conditions imposed by the European Union in return for the state bailout.
Additional reporting by Saeed Azhar in SINGAPORE and Clare Baldwin in HONG KONG; Editing by Michael Flaherty and Muralikumar Anantharaman