NTUC Enterprise’s commitment to majority stake in Income is questioned
Corporate governance issues likely to be raised, focus to be on broader stakeholder view
THE cash general offer made by German insurance giant Allianz for Income Insurance has taken the general public and policyholders by surprise, and raised unhappiness in some quarters.
Quite apart from unhappiness that NTUC Enterprise (NE) may cede its majority share, there is also disquiet over what appears to be an understanding – formed at the time when NTUC Income’s corporatisation was proposed in early 2022 – that NE would remain Income’s majority. Was this narrative simply to get public support for corporatisation?
BT understands that at the time that corporatisation was being discussed in 2022, there were private indications that NE may be willing to cede control as the largest shareholder.
Professor Mak Yuen Teen of the NUS Business School said: “I think some of the backlash is really about the fact that Income should not be treated like other corporate entities which may be focused on pursuing growth and profits. For a financial institution, and particularly one like Income, there is a need to take a broader stakeholder view.
“So the question is whether the wider interests of stakeholders are being considered by both the Income and NE boards. There may also be a question as to whether the NE board was already considering a strategic investor when it gave that undertaking (to remain the majority shareholder)“.
Corporate governance issues are likely to be raised. Income chairman Ronald Ong is also on NE’s board; Income’s deputy chairman Adeline Ong is NE chief executive.
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Prof Mak said: “What is in the best interest of NE may not be the same as what’s in the best interest of Income. Income supports the deal. The two directors should disclose if they recused from the decision to support the (Allianz) deal. On the NE side, they should also be recusing as a matter of good governance.”
Tan Suee Chieh, who previously headed NTUC Income and NE, has posted on his LinkedIn page that he was told in a letter from NTUC Income that NE’s majority stake would be maintained after corporatisation.
NTUC Income was the cooperative which operated Income’s business prior to corporatisation.
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In his post, Tan wrote: “Income has not only reversed its 2022 commitment to maintain NE as the majority shareholder, but NE would also crystallise a significant capital gain through the sale of its shares. This gain, I argued in 2022, should be more fairly distributed to those shareholders who invested before NTUC Enterprise’s capital injection in 2015-2020.”
He said he advocated “for a fairer distribution of equity gains for shareholders who invested before NTUC Enterprise’s capital injection, but without success”. He brought his concerns to the Monetary Authority of Singapore, which shared them with the Registrar of Cooperatives. But the Registrar of Cooperatives declined to intervene.
In his post he attached the letter he wrote to the MAS in 2022, highlighting the issue of dilution of shareholder interests and what he proposed as “restitution”.
BT understands that around that time in early 2022, when an extraordinary general meeting was held to discuss corporatisation, NE did indicate to Income’s board that it would remain a majority shareholder and was committed to support Income in terms of maintaining sound liquidity and a sound financial position.
But there were also indications that should there be a strategic shareholder better able than NE to support Income’s growth, NE may cede its position as the largest shareholder.
These indications were not publicly known.
The entry of Allianz as possible strategic shareholder occurs barely two years since corporatisation was completed in September 2022.
Allianz last week announced a pre-conditional general offer for 51 per cent of Income Insurance at S$40.58 per share, in a deal valued at S$2.2 billion. The offer represents a premium of 37.3 per cent over Income’s net asset value per share of S$29.55 as at December 2023.
Allianz needs to acquire 54.7 million shares to reach 51 per cent. NE currently holds 77.98 million shares or 72.8 per cent of 107.2 million shares. Minority shareholders account for 27.2 per cent.
Minority shareholders are given the first right of refusal. NE has given an irrevocable undertaking to sell the number of shares necessary to enable a 51 per cent stake for Allianz. This means NE’s shareholding could eventually range between 21.8 and 49 per cent depending on minority shareholders’ response.
The corporatisation exercise in 2022 set out to give Income more operational flexibility, especially in terms of access to capital. Under the co-operative framework, institutional shareholders were limited to co-ops and trade unions. Co-op shares were redeemable and could not count as regulatory capital since 2005. They were classified as financial liability instead.
NE has had to put in capital for NTUC Income three times since 2015. In 2015 it put in S$200 million and in 2017, S$330 million. Both were in the form of redeemable shares as Income was still a co-operative. Income lobbied the Ministry of Culture, Community and Youth for a new class of permanent shares.
In 2018, NE shares were converted to irredeemable shares, which qualified as Tier-1 capital to support solvency requirements.
BT understands that in 2018, institutional investors were asked whether they would agree to convert their holding into irredeemable shares. But no one took this up.
The third capital injection of S$100 million in 2020 was made to shore up Income’s capital position amidst Covid hardships.
The option to convert to irredeemable shares was only offered to institutions, and not to individuals. This was in keeping with the spirit of the Cooperative Societies Act, which was to allow members the flexibility to redeem their shares at any time.
Under Income’s old cooperative structure, shareholders could redeem their shares at par value of S$10 each. After the corporatisation, however, where co-op shareholders received an equivalent number of Income shares on one-for-one basis, the option to redeem was no longer available.
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