The Singapore government has decided that it would not be in the public interest for the proposed S$2.2bn ($1.68bn) sale of a stake in Income Insurance to global insurer Allianz, in its current form, to proceed.
Minister for Culture, Community and Youth and Second Minister for Law Edwin Tong announced the government’s decision in a ministerial statement delivered in Parliament yesterday. He cited concern over the terms and structure of the proposed transaction, particularly in the context of an earlier corporatisation exercise in which Income was converted from a cooperative to a company.
Mr Tong said that the Ministry of Culture, Community and Youth (MCCY) had no prior knowledge of the proposed transaction before the public announcements. The proposed deal was announced in July 2022.
He said, “When we first saw the announcements, we accepted the intent of the transaction, which is to strengthen Income.
“We saw that Income would be engaged in a strategic partnership with a major reputable player in the industry. This would strengthen Income’s capital base and allow it to have more access to capital."
However, MCCY enquired further into the proposed transaction, including on the various public queries that had been raised over the deal.
From its review, the MCCY gathered the following:
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The parties intended to implement a number of initiatives to optimise Income’s insurance business after the completion of the acquisition.
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The plan was for Income to run its insurance business more efficiently, without the need to hold as much capital as it presently does.
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As such, post-transaction, Allianz contemplated that Income could reduce its existing share capital, and return this capital to its shareholders.
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Allianz projected that Income would return some S$1.85bn in cash to its shareholders, within the first three years after completion of the transaction.
NTUC Enterprise (NE) and Income focused on bringing in a strong shareholder and believed that, even with these initiatives, the proposed transaction with Allianz would allow Income to continue with its social mission.
Concerns
However, MCCY was not confident that the proposed transaction would not affect the ability of the co-op movement as a whole, or of Income itself, to carry out its social mission.
Mr Tong said, “First, we find it difficult to reconcile the proposed substantial capital reduction, soon after the transaction is completed, with Income’s representations to MCCY during the corporatisation exercise that it was aiming to build up capital resources and enhance its financial strength. As part of that exercise, Income had sought and obtained an exemption to allow it to carry over a surplus of S$2bn to the new corporate entity. The proposed capital reduction runs counter to the premise on which the exemption was given.There is no clarity on how this sum will be directed towards advancing Income’s social mission.
“Second, MCCY is not satisfied that Income will be able to continue fulfilling its social mission after the proposed transaction.
“There are no clear binding provisions or structural protections in the deal to ensure that Income’s social mission will be discharged.
“It is also not clear what Income might do after the capital extraction, for example, to adjust or trim its insurance portfolio, and what impact this could have on policyholders.”
He also said, “We had known earlier that the proposed transaction would leave NE as the minority shareholder in the new entity, with a minority of board positions and no ability to nominate the chairman of the new Income entity. On their own, these factors would not have caused MCCY to object to the transaction.
“However, taken together with the proposed capital extraction and the lack of structural protections in the deal to ensure the continuation of Income’s social mission, cumulatively, they pose a risk that MCCY judges not to be acceptable."
Mr Tong added, “Income may wish to pursue, whether with Allianz or any other partners, so long as the concerns highlighted are fully addressed. undertaking not to redeem to an indefinite period, as NE was prepared to convert its shares to the new class of irredeemable shares once the legislation was passed.”
Prime Minister’s comments
Prime Minister Lawrence Wong echoed this point. In a Facebook post, he said, "To be clear, the government supports having a strong partner for Income, so as to strengthen its capital base and market position."
Mr Wong said that the government's concerns were with the structure and terms of this specific transaction, "particularly, in the context of assurances which Income had given to MCCY when the former was corporatised in 2022".
Income was established in 1970 under the name NTUC Income Insurance Co-operative Limited. It was Singapore’s first cooperative under the aegis of the labour movement. Income’s social mission is to provide accessible and inclusive insurance.
In 2012, NE was set up as a holding entity for various social enterprises under the labour movement. NE currently holds about 72% of the shares in Income. NE injected a total of S$630m into Income between 2015 to 2020. This included S$100m of capital during the COVID-19 pandemic in 2020.
To read Mr Edwin Tong’s ministerial statement, please click here.