S'pore passes amendment to Insurance Act, rejecting proposed Income-Allianz deal

A bill to amend the Insurance Act and consequently, to allow the government to block the proposed Allianz-NTUC Income deal, was passed in Parliament on Oct. 16.

This follows the announcement on Oct. 14 that the proposed deal between Allianz and NTUC Income has been called off after the government assessed that it "would not be in the public interest."

However, the approval or otherwise of the proposed transaction currently rests with the Monetary Authority of Singapore (MAS) under the Insurance Act (IA).

As such, the amendment bill was “urgently” introduced by the Minister for Transport Chee Hong Tat to provide "a clear statutory basis for MCCY (Ministry of Culture, Community and Youth)’s views to be considered" in any approval involving such applications.

The bill was read a second and third time on Oct. 16 and ultimately passed with support from several Members of the Parliament (MPs), with the Workers’ Party MPs abstaining from voting.

Following Chee's opening speech, a debate involving 19 parliamentarians lasted over three hours.

During the debate, MPs raised questions about the social mission of NTUC Income, as well as the reasons behind the proposed amendment.

In his opening speech, Chee noted that NTUC Enterprise and Income had “acted in good faith”, and their objective of wanting to go into the deal was to “do the right thing” — strengthen Income so that it could do well to continue to do good.

“The government remains supportive of NTUC Enterprise and Income’s efforts to find a strong partner with Allianz or other partners to strengthen Income’s capital base and market position,” he said.

Minister for Culture, Community and Youth Edwin Tong also spoke in parliament on Oct. 16, explaining that "the decision to take this step was not taken lightly."

"In addition, the government decided to act after we came to this conclusion and to do it in as transparent and as forthright manner as possible," Tong said.

Tong also shared that the government had engaged Allianz on the decision and that they had indicated they understood the reasons behind the government's decision.

NTUC did not know about capital extraction exercise

Senior Minister of State in the Prime Minister's Office and Deputy Secretary-General of NTUC Desmond Tan said that the capital reduction plan was not highlighted to the NTUC central committee.

Tan said:

“Specific to this transaction, NTUC Central Committee was briefed by NE and Income on the strategic imperatives for the deal and did not highlight to the Central Committee the capital reduction plan.

In fact, the Central Committee and myself only knew of this on Monday at the ministerial statement and as I am made aware now from the clarifications with NE and Income, Income as a non listed public company would have to comply with the legal responsibility of non-disclosure of commercially sensitive information on Allianz’s plans post-acquisition."

He explained that as a non-listed public company, Income is subject to the Singapore Code on Takeovers and Mergers.

Tan added:

"Income has committed to study carefully the implications of the ministerial statement by the Minister for MCCY and the amendments of the Insurance Act, and will work closely with the relevant stakeholders to decide on the next course of action."

"Thought it was a done deal"

MP Liang Eng Hwa said that he was "surprised" by the government's decision on Monday to stop the deal:

"...I must admit that in my heart, I thought it was a done deal, in due course. So it came as a surprise to hear at Monday's ministerial statement by minister Edwin Tong, that the deal will be blocked on grounds of public interest."

Liang, however, supported the bill, explaining that the capital extraction exercise of S$1.85 billion appeared to run counter to the basis on which the ministerial exemption was granted. "This, to me, is a deal breaker," he said.

Liang nevertheless expressed concerns about the effects that the rejection of the Allianz transaction might have on Singapore's reputation "as a global centre that welcomes international investments":

"It is inconceivable for Singapore as a global business hub to prevent or resist any change of ownership of companies as these are all part and parcels of the market realization and maximization of enterprise value."

Liang nevertheless went on to explain what he saw as the "uniqueness of the Singapore model":

"We're also fully cognisant that there may be pitfalls, and in areas where unfettered free market may not always serve us well, and that is why we do see from time to time, the government's visible hands in action to rectify a situation, or plug a service gap when necessary."

Concerns about the bill's effects on investors

MP Joan Pereira supported the bill but queried the effects the amendments might have on investors:

"This is a high-profile cross border deal. While I fully support the amendments in the interests of the public, would we be setting a precedent where investors need to factor in potentially unexpected changes to regulations?"

Workers' Party (WP) MP He Ting Ru also raised her concerns that the amendments proposed in this bill, along with their urgent nature, would be seen as "retrospective" by players in the corporate finance landscape.

She raised her concerns about how passing such legislation "has the potential to hurt Singapore's reputation for certainty, stability and predictability of our commercial laws."

Chee later replied that the bill does not affect any completed transaction and is, in fact, not retrospective:

"I would like to clarify that there is no formal application yet by Allianz to obtain effective control and become a substantial shareholder of Income. The contractual terms of transaction clearly state that it is subject to regulatory approval by MAS. There is therefore no retrospective application of the law."

However, He concluded that WP would be registering their abstention on the bill:

"The Workers' Party supports the government's blocking of the proposed acquisition in its current form on public interest grounds, based on publicly available information, especially given the concerns that my colleagues and I had raised in this chamber in August. Therefore we will not be rejecting the bill.

However, we believe that to whether this bill will be seen to be rushed and retrospective legislation making and this assault on legal and regulatory certainty, that changing legislation in the middle of a major life transaction means that we would need to register our abstention on this bill."

Bill will not affect other insurers or financial industry at large: Chee

Chee, in his closing remarks, also said that the bill "does not affect any other insurer or the financial industry at large", responding to a query by MP Saktiandi Supaat:

"Mr Saktiandi asked about the bill's impact on existing free trade agreements for activities in the financial services sector. It does not impact our free trade agreements. As I've explained earlier, we do not have concerns with the suitability of Allianz to be a majority shareholder of Income.

Our concerns lie in the terms and structure of this particular deal, and such concerns would apply whether the acquirer is Alliance or any other entity and whether the acquirer is local or foreign."

Chee also emphasised that the amendments are tightly scoped:

"We need to make sure that we still keep our operating environment one that is business-friendly, and that investors will have confidence to continue to want to invest in Singapore. I think that is important, and that's why, we want to scope it tightly for this purpose, and not have a general clause."

Heated exchange between Chee and Lim

WP MP Jamus Lim called the bill a "sound decision but outline what he called a "troubling sequence of events" in the run-up to the announcement of the Income-Allianz deal, and questioned MAS' initial assessment of the Income-Allianz deal.

Lim also called the decisions and positions MAS and MCCY took in advance of the proposed deal "troubling", claiming that "there was no coordinated discussion between the two major relevant regulators, MAS and MCCY, in advance of the proposed deal."

Alleged "communication breakdown"

Lim criticised what he called "not merely a mild oversight in informational exchange, but a communication breakdown":

"Has our civil service become sufficiently siloed in their treatment of what falls under which agency or Ministry's purview that even for transactions of such prominence, no joint working group was convened to ensure sufficient information exchange in advance?"

Chee later hit back at Lim's criticism of the civil service and also responded to comments by NCMP Leong Mun Wai:

"I hope Mr. Leong and Associate Professor Lim could give our officers some credit, could understand what they were going through and also look at it from their perspective, from their point of view.

They were not trying to do something wrong, or as Professor Lim mentioned, to lead to multiple breakdowns of communications or to work in a siloed manner. That's certainly not what they were trying to do.

They were trying their very best to do their work. And when they saw that there was a link, they shared the information, they surfaced it to the board, and then we shared the information with MCCY."

MP Jessica Tan appeared to also respond to Lim's comment on "silos", saying:

"You know, I think there's been some questions on the 'silos'. I think we've got to be fair to officers. They are doing that work, and I'm glad that when they spot an important information that is required, they have the courage to speak up and bring it up, and the process allows for them.

So let us not put too much criticisms on this process, because it might instil an opposite behaviour, and I think we need to protect this as well."

Concerns about when information was shared

Separately, MP Joan Pereira had said that "due to the nature and the valuation of this deal, one would expect close coordination among the relevant authorities such as MCCY and the MAS at all stages during the process of evaluation."

While Pereira said that it was "comforting to know that we continue to have good officers in the MAS and even the civil service, who are alert and can pick out issues beyond their scope," she asked why the information had not been shared earlier with the house, when the issue was being debated in parliament back in August.

Chee later explained why the information had not been shared to Parliament by MAS earlier:

"MAS received business projections of the cash remittance in mid-July, and was reviewing the information. As the MAS team was still assessing the proposal, they did not surface this information to the MAS board before the Aug. 6 parliament sitting.  "

The social mission of NTUC Income, moving forward

During the debate on Oct. 16, several MPs also raised queries about the mission and purpose of NTUC Income.

NMP See Jinli Jean had earlier asked the government to elaborate on "what it sees as Income's social mission now and going forward into the future".

This was in reference to Tong's remarks on Oct. 14 that MCCY does not believe that the proposed Income-Allianz transaction would allow Income to continue fulfilling its social mission.

Tong elaborated on the issue of Income's social mission, responding to comments made early by NMP Keith Chua:

"Sir, it is very broad. And I think Mr. Chua speech does acknowledge that it is sometimes in the nature of the way in which social mission has to be carried out, and it also has to evolve to match the aspirations and the needs of each generation.

So by definition, there has got to be a level of flexibility, malleability, which allows the parties charged with their social mission to adjust and to take steps to adjust."

Top photo from MDDI Singapore/YouTube.