FURTHER OPEN LETTER TO MAS ON THE SALE OF INCOME INSURANCE TO ALLIANZ EUROPE BV

Dear Chairman

1. I refer to my open letter to the MAS dated 2 August 2024 and the Joint Statement from NTUC Enterprise (NE) and Income Insurance in dated 4 August 2024 (the “NTUC Joint Statement”).
2. I have carefully considered the NTUC Joint Statement. For the reasons given below, I respectfully reiterate my call for the MAS to comprehensively scrutinise the proposed sale of the majority stake in NTUC Income to Allianz. The NTUC Join·t Statement claims that the arguments in my open letter are “not well founded” and “unfair”. I disagree. It is in fact the NTUC Joint Statement that has got some key points fundamentally wrong.
3. First, there can be no question that when NE increased its shareholding in NTUC Income by 63 million shares between 2015 and 2020, it obtained those shares at a very steep discount to their true value.
   1. NE obtained those shares at par value of $10 per share when the true value of those shares was multiple times that.
   2. The NTUC Joint Statement, in fact, accepts that NE’s capital injection at par value of $10 per share between 2015 and 2020 was done without reference to NTUC Income’s prevailing net asset value.
   3. NE therefore enjoyed a significant “paper profit” in increasing its shareholding in NTUC Income from 30% to 70% at par value.
   4. It is also indisputable that, in the process, the minority in NTUC Income were diluted. They saw their shareholding reduced from 70% to 30% as a result of the 63 million extra shares that were issued to NE.
   5. As long as NTUC remained a co-operative society, this would not have made a difference because all members, including NE, could only exit at par value, regardless the real value of the shares. That is the nature of a co-operative.
   6. However, post the corporatisation exercise in 2022, all that changed! While all members could now deal with their NTUC Income shares, the fact remains that NE would have the benefit 70% of NTUC Income’s value, while the diluted minority would only get 30% of the value because of the 63 million extra shares that had been issued to NE between 2015 and 2020.
   7. In other words, the current plan to sell 51% of NTUC Income to Allianz generates a tremendous profit for NE on the shares which it had obtained at a mere par value. None of this windfall on the 63 million shares (not even 1%) is being shared with the minority who saw their shareholding diluted from 70% to 30%.
   8. If NTUC Income had remained a cooperative, this sale (and therefore the tremendous profit NE now seeks to keep totally for itself) would not have been possible.
4. The NTUC Joint Statement avoids this reality. It points instead to the fact that the minority shareholders “voted overwhelmingly in favour of corporatisation”. Again, this fails to highlight some important realities:
   1. One, given NE’s overwhelming shareholding control in NTUC Income, the vote on corporatisation was going to pass in any event, regardless the views of the minority.
   2. Two, the minority was not in any event given any real choice in the matter. NE was already in the driver’s seat as majority shareholder. The minority could either join NE and vote for corporatisation (and with that, the chance to sell their shares to any willing buyer at higher than par value) OR be overruled. No vote was ever put to the minority whether NE should compensate them in any way for the dilution of their interest from 70% to 30%1 There should be no prize for guessing how the minority would have voted on this if it had been put to them.
5. Secondly, the NTUC Joint Statement is completely wrong in stating that NE’s undertaking to hold on to the shares ”was not for an indefinite period”.
   1. The NTUC Joint Statement relies on a statement in a 21 November 2014 board meeting minute (”NE is willing to give an undertaking not to redeem the shares for at least 10 years”) to argue that that statement shows ”NTUC Enterprise’s commitment was not for an indefinite period”). This is fundamentally mistaken.
   2. I was the Group CEO of NE at the time and recall clearly that there were multiple meetings and discussions both at the NE and NTUC Income boards from around November 2014 to around February/ March 2015 where the following was discussed and related commitments were given by NE:
      1. 1. It was anticipated that legislation would at some point in time in future be passed by Parliament to allow for irredeemable shares in co-operative societies to be issued to institutional members like NE.
         2. Pending passage of this legislation, NE undertook that should additional shares in NTUC Income be issued to it at par value, it would not redeem those shares for at least 10 years and further undertook that upon passage of the legislation, NE would convert all of those shares to irredeemable shares.
         3. I further recall that I informed the NTUC Income board that I was confident that NE would be prepared to give an undertaking not to redeem those shares indefinitely. To the best of my recollection, sometime after the above 21 November 2014 board meeting that the NTUC Joint Statement relies on, NE gave such an undertaking to NTUC Income because NTUC Income’s board expected such a no time limit undertaking to be given.
         4. It is also a matter of public record that when the legislation was eventually passed, NE converted those shares into irredeemable shares. This is consistent with the undertakings that had been given.
         5. As I said in my earlier open letter, this commitment by NE not to redeem the shares in perpetuity was fundamental to NTUC Income allowing NE to obtain shares in NTUC Income at par value (and not at market or the true economic value for the shares). This assurance helped NE increase its shareholding in NTUC Income from 30% to 70%, all at a mere par value of the shares.
6. So that this point can be put beyond doubt, I invite the MAS to ask both NE and NTUC Income to produce all the relevant board meeting minutes and board papers in the period November 2014 to March 2015 covering the discussions on the undertaking that was given by NE. Also, given the public interest in this matter and since the NTUC Joint Statement has already voluntarily quoted from the 21 November 2014 NTUC Income board minutes on this issue, NE and NTUC Income should have not real objection to publicly release those additional minutes and board papers. The MAS and the public can then judge the matter for themselves.
7. Third, it is important that when assurances and undertakings are given, they should be kept.
   1. As I said above, NE gave a clear commitment not to redeem in perpetuity the additional shares which were to be issued to it at par value. 63 million shares were eventually issued upon that undertaking. That undertaking should be honoured.
   2. I had, in my earlier open letter, also referred to a separate assurance that was given in the NTUC Income letter of 10 February 2022. The NTUC Joint Statement says that the extract I relied on in that letter should be set out in full. This is curious given that I had actually included the full quote at paragraph 8 of my open letter.
   3. Not only that, but I also provided more details to show that, in giving that assurance, NTUC Income directly responded to my query on the ”permanence” of NE’s shareholding in NTUC Income.
   4. One must ask – how can it be that the further and separate assurance NTUC Income gave on 10 February 2022 that NE would “continue to remain the majority shareholder” of NTUC Income after corporatisation could be so quickly swept away within just 2 years by the present for profit sale to Allianz?

A binding commitment has been given by Allianz to subordinate its profit motive to NTUC’s social mission.

1. 1. Should NTUC’s social mission be eroded down the road and commentators point to these statements made by NE today, would NE blandly say that it cannot overrule Allianz because it is a minority shareholder and that it had done its best to “provide direction towards the social outcomes” but Allianz did not heed such direction?
   2. Respectfully, the NTUC Joint Statement ultimately misses the woods for the trees.

I end by thanking you, Chairman, and the MAS for considering my letters. I sincerely hope the MAS will carefully scrutinise the proposed sale of NTUC Income to Allianz in the interests of Singaporeans.

Tan Suee Chieh
Director, NTUC Income (2003-2017) CEO, NTUC Income (2007-2013) GCEO, NTUC Enterprise (2013-2017)
5 August 2024

by Tan Suee Chieh, Director, NTUC Income (2003-2017) CEO, NTUC Income (2007-2013) GCEO, NTUC Enterprise (2013-2017)

To: Chairman, MAS Board, Mr Gan Kim Yong Dear Chairman

1. This is an open letter to the MAS. The sale of a majority stake in NTUC Income to Allianz has been reported in the news as causing a “public outcry” and raising various concerns (see Mr Han Fook Kwang’s commentary of 1 August 2024 on Channel News Asia).

2. I wish to raise an even more important serious corporate governance issue which needs urgent attention. To fully appreciate this issue, I need to highlight two key events which are precursors to this sale: first, NTUC Enterprise (NE)’s obtaining shares in NTUC Income at a mere par value of $10 per share from 2015 to 2020 and not the true economic or market value of the shares; and second, NTUC Income’s corporatisation in 2022. Important assurances were given on both occasions.

3. First, NTUC Enterprise (NE) injected $630 million into NTUC Income from 2015 to 2020 in return for shares at a par value of $10 per share. It did not pay the true market or economic value for those shares. In other words, NE obtained shares worth far more than the $630 million it had injected into NTUC Income. Indeed, today, NE can sell the shares at $40.58 each. The consequence of those capital injections was that NTUC minority shareholders at the time had their shares diluted. Indeed, as a result of those capital injections, NE’s shareholding in NTUC Income increased very significantly from 30% in 2015 to 70% in 2020.

4. This was arguably defensible at the time because NE had committed not to redeem the shares in perpetuity. I was the Group CEO of NE at that time and played a significant role in assuring and persuading NTUC Income’s independent directors of NE’s commitment, that NE would not redeem its capital (NE shares would be permanent). The purpose of NE making this commitment was to safeguard the social mission of NTUC Income in the long term. As an aside, there were also two other rationales at the time for the exercise, namely, improving NTUC Income’s financial position with the capital injection and also rewarding NE for enduring risk asymmetry i.e. NE had to underwrite Income’s financial position in adverse financial scenarios, whereas minority shareholders were not obliged to.

5. The argument at the time was that with NE’s increased shareholding in NTUC Income, NE would have greater moral authority to prevent mission drift by the social enterprise.

6. Hence, as can be seen from the above, NE’s commitment not to redeem the shares in perpetuity was fundamental to NTUC Income allowing NE to obtain shares in NTUC Income at par value (and not at market or the true economic value for the shares). This assurance helped NE increase its shareholding in NTUC Income from 30% to 70%, all at a mere par value of the shares.

7. Second, a serious concern to NE’s commitment arose in 2022 when there was public concern over NTUC Income’s corporatisation exercise. One needs to understand the difference between co-operatives and corporations. Unlike in corporations, shares in co-operatives can always be redeemed at book value and therefore cannot be counted as Tier 1 regulatory capital. In 2018, the government introduced new cooperative legislation to allow shares in cooperatives to be irredeemable (permanent), enabling them to be counted as Tier 1 regulatory capital. NE was a key player in persuading the government to enact this legislation. NE’s share class was transferred to this category after the legislation was enacted.

8. When NTUC Income became a corporation in 2022, I was concerned that the laws governing corporations would not necessarily bind NE to its commitment to hold its shares in NTUC Income permanently, despite the assurance from NTUC Income in writing that NE was committed to a majority shareholding. There were commitments made by NE and NTUC Income in 2022 that NE would remain majority shareholder in the new corporation, both to the public and to me in writing. The corporatisation of NTUC Income raised the possibility that despite providing commitments to hold their investments permanently, NE could sell its shares in NTUC Income. Given this, I expressed my concerns about the corporatisation of NTUC Income (see my previous letter to MAS of 13 February 2022). I also previously quoted in that letter to MAS of 13 February 2022 from the letter sent to me by NTUC Income on 10 February 2022: “You have raised two further points in your latest letter. First, you mention the reference in our 19 January letter to NE’s majority shareholding in Newco, and ask after the permanence of this. …

… On the first issue, NE has publicly expressed its commitment to Income. It has confirmed that, notwithstanding the corporatisation, it will continue to be the majority shareholder of Newco, and will continue to provide its financial and other backing to Income pursuant to its 2012 letter of responsibility, as required by the regulator, subject always to the interests of Income, which must remain paramount.” (emphasis added)

9. My fears materialised with the recent news that a majority stake in NTUC Income would be sold to Allianz. Given the background outlined above, the sale of NTUC Income to Allianz is a disconcerting departure from NE’s commitment and aforementioned “confirmation” and in turn, a fundamental erosion of the social mission of NTUC Income.

10. It is clear that NE obtained very substantial shares in NTUC Income at par value with minority shareholders being diluted in the process and is now seeking to sell those very same shares at market value. How is NE going to account to the minorities for NE’s substantial windfall which was previously justified on the basis of its commitment to hold on to those shares permanently? In 2022, I argued that, to address this dilution, NE should share its very significant gains in obtaining the shares at a mere par value with minority shareholders who came before them, as NE was investing at $10 per share when the value of the shares was multiple times that, thus diluting the economic interests of the minority shareholders. My argument was not directly addressed. Instead, assurances (quoted above) were given that NE would remain a majority shareholder of Income (after corporatisation) and this purportedly addressed the concerns I had raised.

11. Crucially, Allianz is a commercial profit-making entity. It is difficult to see how Allianz as a majority shareholder in control of NTUC Income is going to prioritise the social mission of NTUC Income over Allianz’s own profits. Indeed, I am not aware of any such binding commitment that has been given by Allianz to subordinate its profit motive to NTUC’s social mission.

12. In the last two weeks, I have felt deeply disappointed with the NTUC Enterprise and NTUC Income Boards because I took the assurances in 2022 in good faith.

13. I urge the MAS to comprehensively scrutinise the proposed sale of the majority stake in NTUC Income to Allianz in light of the above history and commitments given by NE. There is no question that the regulator’s approval is required for the sale. Even NTUC Income has publicly stated that this approval is a pre-condition for the sale.

14. I ask this question: at what point in time was protecting the social mission of NTUC Income no longer an imperative? As citizens and NTUC members, we fairly deserve an answer.

15. As you can see from this turn of events, this is not merely about the sale of Income to Allianz, or only about the social mission of our cooperatives. At heart, it is about the integrity of commitments given by institutions on which we rely to safeguard our nation’s economic well-being and citizens’ interests.

16. Surely, we must rightly expect commitments to be kept and also that when there is a risk of departure from such public commitments, for the regulators to step in, investigate, and take the necessary action, all with full transparency in the process. It is in this spirit that I am writing this as an open letter to the MAS.

17. Thank you for your attention.