I wish to comment on statements issued by Allianz, Income and NTUC Enterprise on Dec 16 (Allianz calls off deal with Income Insurance after public scrutiny, Dec 16).

First, Allianz announced that it was withdrawing its offer to acquire a majority stake in Income Insurance. It also stated that the decision to withdraw it underscored “Allianz’s financial discipline”.

I welcome the decision by Allianz to withdraw its offer. However, the decision to withdraw is not based upon Allianz’s financial discipline but on the Singapore Government’s opposition to the sale and the strong public opinion against the sale.

Second, I am surprised that the leaders of Income and NTUC Enterprise continue to insist that their decision to sell a majority stake in Income to Allianz was the right decision. Let us be clear about the facts.

The proposed transaction was not a merger of equals but an acquisition. Allianz, with 51 per cent of the shares, would control Income. It is therefore not credible for Income and NTUC Enterprise to continue to insist that the transaction would not jeopardise Income’s social mission.

For this reason, Minister Edwin Tong told Parliament in October that the Ministry of Culture, Community and Youth (MCCY) was not satisfied that Income would be able to continue fulfilling its social mission after the proposed transaction.

Third, the statements by Income and NTUC Enterprise do not refer to an important point, which was one of the reasons for the Government’s decision to block the transaction. When Income ceased to be a cooperative, it had an accumulated surplus of $2 billion. In normal circumstances, this surplus would have to be transferred to the Co-op Societies Liquidation Account. The money would be used to benefit the co-op sector generally.

The regulator, MCCY, gave Income an exemption from this requirement, on the understanding that the surplus would be transferred to a new corporate entity and strengthen its capital base. In violation of this understanding, Allianz proposed that Income should reduce its capital and return $1.8 billion to its shareholders.

Speaking in Parliament, Mr Tong said: “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.”

I think the leaders of Income and NTUC Enterprise should apologise to MCCY for not honouring this undertaking.

Fourth, going forward, I would advise the leaders of Income and NTUC Enterprise to stop trying to sell Income to a larger insurance company. Income is a very successful social enterprise. It should focus on organic growth and not on seeking a strategic partner.

Fifth, there is one other point to raise. I understand that the chairman of Income is also the chairman of Morgan Stanley. In view of this, it was inappropriate for Income to appoint Morgan Stanley as its financial adviser. The chairman has explained that he took no part in the board’s decision to appoint Morgan Stanley. He should have advised his board not to appoint his bank because it gives rise to an appearance of conflict of interest.

 

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