Investigating Role of Income Insurance’s Financial Advisor in Income-Allianz Transaction and Income’s One-off S$43 Million Capital Reduction Exercise in 2023

Mr Leong Mun Wai asked the Prime Minister and Minister for Finance (a) whether the Ministry knew of Income Insurance Ltd’s one-off capital reduction exercise of approximately S$43 million in 2023; (b) whether this one-off capital reduction benefits the co-operative movement as a whole or can be reconciled with Income Insurance Ltd’s representations to the Ministry when it sought an exemption from section 88 of the Co-operative Societies Act as part of its corporatisation; and (c) if not, whether any action will be taken against Income Insurance Ltd.

I am glad Mr Leong used the term "capital reduction" instead of "asset stripping" in his two questions. Minister Chee Hong Tat and Mr Leong had an exchange on this matter at the last Sitting in October 2024, where Minister Chee explained why "capital reduction" was a more appropriate term than "asset stripping". The term "asset stripping" suggests that the company’s business is being dismantled, which is not the case here. But the more important point is that Mr Leong agrees with the Government that it would not be acceptable for Income to proceed with the deal in its current form, including the planned $1.85 billion capital extraction over three years. That was why the Government tabled an urgent Bill at the last Sitting for Parliament’s approval to amend the Insurance Act, which all Members of the House supported except the Members of Parliament from the Workers’ Party who abstained.

For the five years prior to corporatisation, NTUC Income Insurance Co-operative Limited (NTUC Income) paid an average annual dividend of $62 million. When NTUC Income underwent its corporatisation exercise in 2022, its entire business, assets and liabilities were transferred from the former NTUC Income to the new corporate entity Income Insurance Limited (Income). As part of the transfer, NTUC Income's retained earnings were all converted to share capital in the new corporate entity, Income.

To continue providing an annual payout to shareholders for financial year (FY) 2022, Income sought approval from the Monetary Authority of Singapore to reduce its share capital. This was necessary because FY 2022 was a transition year where Income changed its legal form and had all retained earnings in the co-operative converted to share capital in the new corporate entity.

The payout to shareholders for FY 2022 was consistent with the ordinary course of business as NTUC Income had distributed dividends to its members in previous years prior to corporatisation. In fact, both the total quantum and amount per share in FY 2022 were lower than what NTUC Income had paid out in annual dividends in the prior five years.

The proposed plan to extract $1.85 billion over three years is very different in both its nature and quantum and is not comparable to regular annual dividends. It also does not align with the representations that NTUC Income made to the Ministry of Culture, Community and Youth when it sought exemption from section 88 of the Co-operative Societies Act, as explained by Minister Edwin Tong in his 14 October 2024 Ministerial Statement.

Mr Leong also asked about the role of Income’s financial adviser in providing independent advice.

Income appointed Morgan Stanley Asia (Singapore) Pte as its financial adviser to provide financial advice and assist it with structuring the proposed transaction and negotiating the transaction terms, based on a set of agreed terms of engagement. It is for Income, as the client, to decide on the quality of its financial adviser’s advice.

The role of a financial adviser engaged by the target company to negotiate and advise on a takeover transaction is different from the role of an independent financial adviser (IFA). The IFA has to observe additional standards set by the Securities Industry Council.

In the course of a voluntary general offer (VGO), an IFA must be appointed by the target company’s directors to independently evaluate whether the terms of the offer are fair and reasonable, and recommend to shareholders whether to accept or reject the offer. The advice of the IFA will be set out in a takeover document to shareholders, which should disclose and consider all material information, including substantial capital reduction plans. This due process ensures shareholders receive complete information and are provided independent advice prior to making their decision.

In the case of Income, the appointment of an IFA, and the disclosures in the takeover document, have not arisen as the proposed Income-Allianz transaction is still at the pre-conditional VGO stage and has not progressed to a VGO. As explained during the Parliament Sittings in October, the Government has decided that the deal in its current form cannot proceed.