Singapore blocks Income-Allianz deal but leaves door open if concerns over public interest are fully addressed

SINGAPORE: The Singapore government has intervened to stop the proposed deal between NTUC Income and German insurer Allianz. 
Under the proposed transaction, which was announced on Jul 17, Allianz would have acquired a majority stake in Income. The announcement triggered a public outcry, with concerns over whether Income would continue its social mission.
While the government will not allow the proposed transaction to proceed, it said it is open to new arrangements if the concerns highlighted are fully addressed. 
Several prominent figures had spoken out against the deal when it was first announced. 
“The government has assessed the proposed transaction and has decided that it would not be in the public interest for the transaction, in its current form, to proceed,” Culture, Community and Youth Minister Edwin Tong told parliament in a ministerial statement on Monday (Oct 14).
The German financial services giant announced its plans to buy a majority stake in Income for around US$1.6 billion in July. 
NTUC Enterprise said at the time that it would remain a “substantial” shareholder if the sale went through.
The Ministry of Culture, Community and Youth (MCCY) is not confident that the proposed transaction would not affect Income, or the co-op movement as a whole to carry out its social mission, he added. 
“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,” said Mr Tong. 
Income, a former co-op, was corporatised in 2022. In doing so, it sought to be exempted from Section 88 of the Co-operative Societies Act, which allowed it to carry over approximately S$2 billion in surplus to the new corporate entity, said the minister. 
The proposed capital reduction in the Income-Allianz deal “runs counter” to the premise for why the exemption was given, he added. 
“If not for the ministerial exemption in 2023, Income co-op’s accumulated surplus of some S$2 billion would have gone to the CSLA after being wound up, to benefit the co-op movement in Singapore as a whole.” 
“MCCY has not seen any arrangement within the present transaction to account for the estimated S$2 billion surplus that was carried over to the new corporate entity, due to the exemption,” he added. 
“There is no clarity on how this sum will be directed towards advancing Income’s social mission.” 
MCCY is not satisfied that Income will be able to continue fulfilling its social mission after the proposed transaction, said Mr Tong. 
“There are no clear binding provisions or structural protections in the deal to ensure that Income’s social mission will be discharged.” 
What Income may do after the capital extraction is not clear, said Mr Tong. 
NTUC Enterprise has said it intends to maintain Income’s social mission, and MCCY accepts that it is making this commitment in “good faith”. 
“But MCCY is not confident that NE’s intentions, or the assurances Income gave earlier to MCCY, can be upheld.” 
MCCY knew earlier that the proposed transaction would leave NTUC Enterprise as the minority shareholder in the new Income entity, with a minority of board positions and no ability to nominate the chairman of the new entity, he noted. 
These factors would not have caused MCCY to object to the transaction on their own, said Mr Tong.
“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,” he added. 
“As such, it is the Government’s view that it is not in the public interest for the transaction, in its current form, to proceed.” 
The government understands and accepts that the strategic purpose behind Income’s corporatisation exercise and potential partnership with Allianz was to strengthen it and make it more financially sustainable in the longer term, stressed the minister. 
“The Government also does not have concerns over Allianz’s standing or suitability to acquire a majority stake in Income.” 
The government is only concerned over the “terms and structure” of this specific transaction, with the context of the preceding corporatisation exercise, said Mr Tong. 
Prime Minister Lawrence Wong reiterated this point. In a Facebook post, he wrote: “To be clear, the Government supports having a strong partner for Income, so as to strengthen its capital base and market position.”
Mr Wong added 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”.
During his ministerial statement, Mr Tong said Income was a co-op and subject to the objectives and obligations of one, which was why the way Income was corporatised and the Section 88 exemption had to be taken into account. 
The government’s assessment of the transaction’s viability “must go beyond prudential considerations alone”. 
“Whilst we will not allow the proposed transaction to proceed, we are nonetheless open to any new arrangement which Income may wish to pursue, whether with Allianz or any other partners, so long as the concerns highlighted are fully addressed.” 
The government intends to amend the Insurance Act to provide “clear statutory basis” for MCCY’s views to be considered in applications related to insurers that are either a co-op or linked to a co-op, said Mr Tong. 
There is currently no provision for the Monetary Authority of Singapore (MAS) to consider MCCY’s views on the matter, he added. 
The government recognises that insurance co-ops are a “special category” of insurers with a social mission, which is why the views of the minister overseeing co-ops should be considered, said Mr Tong. 
Given the “time sensitivity”, Minister-in-charge of MAS Chee Hong Tat will table the amendments in parliament “on an urgent basis”, and the Bill will be read a second and third time on Wednesday. 
The crux of the outcry covered how Allianz, as a large multinational company, would not be fully aligned with the original mission of the Singapore entity, which is to serve the needs of low-income workers. 
Those who spoke up about the deal include former NTUC Income CEO Tan Kin Lian, ambassador-at-large Tommy Koh and Mr Tan Suee Chieh, who was CEO of NTUC Income from 2007 to 2013 before becoming Group CEO of NTUC Enterprise from 2013 to 2017.
Mr Tan Suee Chieh called the proposed deal a “breach of good faith” and asked government regulators to step in.
In response to criticism of the deal, NTUC Enterprise and Income had said in a joint statement on Aug 4 that NTUC Enterprise’s undertaking to hold on to its shares in Income “was not for an indefinite period”. 
Mr Tan wrote in a Facebook post a day later that NTUC Enterprise was “seriously mistaken”, recalling multiple meetings and discussions where it had committed to this. 
Addressing Leader of the Opposition Pritam Singh’s question on the topic, Mr Tong noted that Mr Tan, then group CEO of NTUC Enterprise, had said at an Income board meeting on Nov 21, 2014, that the latter was confident that his board would agree to a request to extend this undertaking not to redeem to an indefinite period. 
At the time, Mr Tan also said that NTUC Enterprise was prepared to convert its shares to the new class of irredeemable shares once the legislation was passed. 
But the letter that was eventually sent from NTUC Enterprise to Income on Feb 11, 2015, said that the shareholding in NTUC Income is “thus committed over the long-term, and there is no intention of withdrawing the share capital to be subscribed”. 
This means that there was no specific commitment that the shares would not be redeemed indefinitely, said Mr Tong in parliament on Monday
“Neither was there a commitment that the shares would not be transferred to someone else,” he said, adding that NTUC Enterprise’s 2015 commitment is “no longer relevant in today’s context”.
NTUC Enterprise chairman Lim Boon Heng said at the time that Income would continue to provide affordable insurance for lower-income customers, adding that Income’s life insurance market share was “less than 10 per cent in the past 10 years”. 
Labour chief Ng Chee Meng also said that NTUC would ensure Income upholds its commitment to keep premiums affordable for two existing low-cost schemes for union members.