Proposed capital reduction plan was 'not a guaranteed outcome' of Income-Allianz deal: Income chairman
Income chairman Ronald Ong assured shareholders that the company is keeping its options open and is “continuing to explore different share liquidity options, which can include a share buyback programme”.
Income Insurance held an annual general meeting at The Star Theatre on Jan 24, 2025. (Photo: CNA/Tang See Kit)
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SINGAPORE: A capital reduction plan was “not a guaranteed outcome” of the now-aborted Income-Allianz deal as it required multiple approvals, which would have acted as safeguards to ensure that Income Insurance’s financial position would not be weakened, Income's chairman Ronald Ong said on Tuesday (Jun 24).
The chairman was speaking at the firm's first annual general meeting since the deal was aborted. Mr Ong told the 600 shareholders present at the meeting that Income is keeping its options open and continues to explore different share liquidity options, which may include a share buyback programme.
The annual general meeting, which started at around 5.30pm, was not open to the media. It eventually ended just before 9pm.
A few shareholders who were seen leaving the venue earlier told CNA that both Mr Ong and chief executive officer Andrew Yeo spent some time in their opening speeches addressing the scuppered deal, but they were hoping for more details on how they can exit their holdings in the unlisted Income Insurance.
Last July, German insurer Allianz made an offer of about S$2.2 billion (US$1.6 billion at the time) for a 51 per cent stake in Income Insurance.
NTUC Enterprise, which has a 72.8 per cent stake in the insurance company, said at the time that the proposed deal can strengthen the local insurer’s position in Singapore’s highly competitive market. It also said it would remain a “substantial” shareholder in Income Insurance if the sale went through.
The proposed deal triggered concerns, including public statements from several prominent figures, over whether Income would be able to continue its social mission.
The government stepped in to block the transaction in October and Allianz withdrew its offer in December.
A key concern was a planned capital reduction exercise in the proposed deal, which sought to decrease the capital held by Income and return S$1.85 billion to shareholders within three years after the deal is completed.
This ran counter to why Income was allowed to carry over some S$2 billion after it changed from a cooperative to a company in 2022, said then-Minister of Culture, Community and Youth Edwin Tong in parliament, as he explained why the government was stepping in.
NO COMMITMENT FOR CAPITAL OPTIMISATION
Based on a transcript uploaded on Income's website, Mr Ong said it was “important to know that there was no commitment to conduct a capital optimisation”.
While Allianz had included the capital optimisation proposal in its preliminary business plan submitted to the Monetary Authority of Singapore (MAS), the plan was “not for approval” by the current board of Income Insurance or NTUC Enterprise at that point in time.
Only when the offer is formally launched would shareholders have been informed of the details, including the possibility of a proposed capital optimisation, said Mr Ong.
However, that did not materialise as the offer was withdrawn after the government raised its concerns.
Mr Ong added that Allianz’s proposed capital optimisation was “not a guaranteed outcome”, as it would be contingent on Income Insurance’s business performance, market conditions in subsequent years and the organisation’s solvency and capital requirements at the time.
It would also require approvals by the future board of directors at the time of the capital optimisation exercise, at least 75 per cent of shareholders at a special resolution, as well as the MAS and “possibly the High Court of Singapore”.
“These safeguards would have been in place to ensure that Income Insurance will always retain its financial strength, and that the capital and cash reserves it has following any capital optimisation, if it were to happen, will be sufficient to meet its business requirements and maintain policyholders’ interests,” he said.
He also said that it is common for financially sound companies to optimise their capital structure or return surplus capital to shareholders.
“Being able to do so is a mark of financial strength as the company must have a strong capital base and buffer to implement a capital optimisation plan successfully,” he said.
Income had announced earlier this month that Mr Ong is retiring from his post as chairman, but will remain on the board of NTUC Enterprise.
At the meeting, Mr Ong said the board has proposed for lead independent director Joy Tan to take over as chairperson, subject to her re-election at the meeting and regulatory approvals.
EXPLORING SHARE BUYBACK PROGRAMME
In his speech, Mr Ong also reiterated that the board had “always acted in good faith” and was of the view that the proposed offer from Allianz would be in the best interest of Income and its shareholders.
Having a strategic partner such as Allianz would have strengthened the local insurer’s competitiveness and also provided access to tap the German insurer’s regional scale and networks.
Allianz’s financial strength would also be additional support, especially in times of extreme crisis. More importantly, the deal would have been “a viable liquidity option” for minority shareholders, said Mr Ong.
“If Allianz’s offer were approved, launched and accepted by shareholders, these shareholders would have a share liquidity option to unlock the value of their shares at S$40.58 per share,” he said, adding that such a liquidity option was “a request that many shareholders have put forth” since the corporatisation in 2022.
Mr Ong assured shareholders that the insurer is keeping its options open and is “continuing to explore different share liquidity options, which can include a share buyback programme”.
“We will update shareholders of any material development accordingly,” said Mr Ong.
ADDRESSING CONFLICT OF INTEREST
Mr Yeo, who also spoke at the annual general meeting, addressed the issue of a potential conflict of interest in appointing Morgan Stanley as Income's financial advisor for the now-withdrawn deal.
This was due to Mr Ong's positions in both Income and Morgan Stanley.
Mr Ong, in addition to being chairman of Income, is also the chairman of Morgan Stanley's Southeast Asia business. He has worked for Morgan Stanley for over 20 years.
Mr Yeo, the chief executive, noted that the appointment of a financial adviser went through a "considered selection process", with two financial advisers, including Morgan Stanley, identified for consideration.
Morgan Stanley was eventually selected for its "strong record" in the insurance and merger and acquisition space, particularly in Asia.
Mr Yeo went on to add that the appointment of Morgan Stanley was first tabled by a steering committee to the firm’s audit committee for review before the ratification by Income’s full board.
Mr Ong was not part of this steering committee and had also recused himself from the board’s decision to appoint Morgan Stanley, said the chief executive.
Finally, a separate board-level transaction steering committee chaired by an independent director and included a majority of independent directors was responsible to provide oversight on the execution of the transaction. This transaction steering committee, which included Mr Ong, tabled recommendations to the board for decision, he added.
"Mr Ong also recused himself from all discussions, decisions and processes related to the appointment and engagement of Morgan Stanley, including the terms of their appointment and engagement," said Mr Yeo. "However, as chairman of the Income Insurance Board, he could participate in discussions relating to the transaction.
"I would like to close this update by reminding our shareholders that the Income Insurance board and management are always committed to upholding good corporate governance, to ensure that the interests of Income Insurance and all our stakeholders, including policyholders and shareholders, are considered and safeguarded," he added.
SOME DISAPPOINTED, OTHERS SURPRISED
A shareholder who spoke to CNA after the end of the annual general meeting said Income's representatives could have done more to explain why the government saw the need to intervene in the proposed deal.
"I was expecting them to explain why it went wrong, did they make a mistake? But they only repeated that they did things in good faith," said the shareholder who asked to remain anonymous.
"Personally, I am a bit disappointed. If everything they do is correct ... then why will the minister need to stop you? (sic)"
The same shareholder also expressed disappointment at plans shared by the insurer on growing its business, including the hiring of more sales agents.
"I think that's wrong. Many other companies are moving forward without a middleman and leaning more on technology, that's what they should be exploring," he said.
Another shareholder said the dividends issued by Income's board have come down over the years, reflecting its challenges in a competitive market.
He also wondered how the insurer would solve the conundrum of fulfilling its social obligations while being a public company.
That said, the mention of a possible share buyback programme was a surprise for some, who described it as a "somewhat positive development" for minority investors who had to navigate the complexities of trading in the shares of a non-listed firm.
According to Income's latest annual report, institutional investors held about 79.8 million shares, with NTUC Enterprise Co-operative Limited having close to 78 million of those shares as of Dec 31, 2024.
The remaining 27.4 million shares are held by some 15,510 individual shareholders.
One of these shareholders said the proposed deal by Allianz had given minority investors hopes of exiting their holdings "in a relatively easier way" and at a "fairly attractive" price.
The scraping of the deal came as a shock and left many investors disappointed, he said, citing how several questions were asked during the annual general meeting about providing more viable options for shareholders to cash out.
"As you can see tonight, many shareholders are elderly folks who are wondering when they can (cash out). (The share buyback) is not confirmed, but at least for us, it sounds like there's a way out," said the shareholder who wished to be known as Mr Tan.
That said, details remain scant and others said much will depend on the offer price, if the share buyback programme is confirmed.
