THE interests of Income Insurance’s minority shareholders are prioritised in the proposed sale of the insurer to Allianz, NTUC Enterprise (NE) and Income Insurance said in a joint statement late on Sunday (Aug 4) night.
The statement responded to points raised in a four-page open letter sent two days ago by Tan Suee Chieh, who previously served as CEO at Income and subsequently NE, to Monetary Authority of Singapore chairman Gan Kim Yong.
The 11-page document with two appendices noted that Tan had cast aspersions on the stakeholders in relation to the proposed purchase of a 51 per cent stake in Income by Allianz from NE and minority shareholders at S$40.58 a share.
“These aspersions are not well-founded and, indeed, unfair,” said NE and Income, which went on to set out “the context and full facts accurately”.
Tan was CEO of NTUC Income from 2007 to 2013, and the group CEO of NE from 2013 to 2017. He criticised NE for reneging on its commitment when it was allowed to raise its stake in the insurer at par value of S$10 per share and at the expense of dilution to minority shareholders.
He gave three reasons why the regulators should step in and reject the sale, including the “even more important serious corporate governance issue”.
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“(I)t is about the integrity of commitments given by institutions on which we rely to safeguard our nation’s economic well-being and citizens’ interests. Surely, it is right to expect these commitments to be kept,” wrote Tan.
He stated that NE was able to up its stake in NTUC Income to 70 per cent from 30 per cent from 2015 to 2020, not at the true or market value of the shares – multiple times that of the par value – because of NE’s commitment not to redeem the shares.
He added that the purpose of NE making this commitment was to safeguard the social mission of NTUC Income in the long term. When NTUC Income became Income Insurance after it was corporatised in 2022, there was also assurance given that NE would continue to be majority shareholder.
“Now, just less than two years later, NE is selling those shares to Allianz for a huge profit – with Allianz becoming the majority shareholder. The sale to Allianz will fundamentally erode the social mission of NTUC Income,” Tan wrote.
He did not believe that Allianz, being a commercial enterprise focused on pursuing profit, will prioritise NTUC’s social mission above its own profits. The sale of Income to Allianz is a “disconcerting” departure from NE’s commitment, he added.
But NE and Income Insurance pointed out that cooperative shares are purchased and redeemed at their par value as they are not equity shares.
Redeemable cooperative shares did not qualify as capital under new insurance regulatory requirements and to support NTUC Income’s capital adequacy ratio, NE subsequently converted all its shares to permanent shares when a new class of irredeemable shares were introduced in 2018.
Conversion to permanent shares was open only to institutional members and not ordinary members of any cooperative as Income was required to maintain ordinary members’ flexibility to redeem at any time.
As part of the corporatisation, the insurer decided voluntarily to convert all members’ cooperative shares to Income Insurance shares on a one-for-one basis, entitling them to the economic interest in Income Insurance. Minority shareholders’ voting rights increased from 0.3 per cent to 26.2 per cent due to this move.
“Hence, the rights of minority shareholders have been protected,” said the joint statement.
NE and Income Insurance took issue with Tan ’s quoting of a letter from the insurer to him dated Feb 10, 2022, reiterating the commitment to be the majority shareholder.
They said the commitment was premised on the interests of Income Insurance remaining paramount always. They claim that the proposed transaction with Allianz came about in this context.
The circumstances when Income Insurance was founded and today are vastly different, noted the two entities, as the competitive landscape has changed with more than 40 global, regional and local insurers vying for a bigger pie of a mature Singapore insurance market.
Moreover, a social enterprise model alone cannot shoulder strong and continuous capital resilience required to be a bigger player.
Allianz is financially strong and possesses global capabilities to create with NE a highly competitive composite insurance powerhouse in Singapore, with strengthened financial sustainability. With Allianz and NE as shareholders and institutional investors behind Income Insurance, the insurer can continue its social mission for the years to come.
Minority shareholders, who would be accorded priority to tender their shares ahead of NE, will stand to reap annualised return (inclusive of dividends and bonus issues) of between 10 and 39 per cent over their holding period, or 3.3 to 28 times their original investment, according to the joint statement.
In comparison, the 30-year annualised return of the Straits Times Index was 4.3 per cent, the statement pointed out.
Several Parliamentary questions have been raised about the proposed deal between Income and Allianz, and these will be answered later this week, said Edwin Tong, the Minister for Culture, Community and Youth in a Facebook post on Sunday.
The ministry oversees the governance and functions of cooperatives.
“As business enterprises with social missions, cooperatives must first be financially sustainable. Social enterprises have to achieve this, not as an end in itself, but in order to better serve their members and social causes in a fast-changing economic environment,” Tong wrote.
