WHY THE GOVERNMENT BLOCKED THE DEAL
The Ministry of Culture, Community and Youth (MCCY) is not confident that the proposed transaction would not affect Income, or the co-op movement as a whole to carry out its social mission, he added.
“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,” said Mr Tong.
Income, a former co-op, was corporatised in 2022. In doing so, it sought to be exempted from Section 88 of the Co-operative Societies Act, which allowed it to carry over approximately S$2 billion in surplus to the new corporate entity, said the minister.
The proposed capital reduction in the Income-Allianz deal “runs counter” to the premise for why the exemption was given, he added.
“If not for the ministerial exemption in 2023, Income co-op’s accumulated surplus of some S$2 billion would have gone to the CSLA after being wound up, to benefit the co-op movement in Singapore as a whole.”
“MCCY has not seen any arrangement within the present transaction to account for the estimated S$2 billion surplus that was carried over to the new corporate entity, due to the exemption,” he added.
“There is no clarity on how this sum will be directed towards advancing Income’s social mission.”
MCCY is not satisfied that Income will be able to continue fulfilling its social mission after the proposed transaction, said Mr Tong.
“There are no clear binding provisions or structural protections in the deal to ensure that Income’s social mission will be discharged.”
NO CONCERNS OVER ALLIANZ’S STANDING
What Income may do after the capital extraction is not clear, said Mr Tong.
NTUC Enterprise has said it intends to maintain Income’s social mission, and MCCY accepts that it is making this commitment in “good faith”.
“But MCCY is not confident that NE’s intentions, or the assurances Income gave earlier to MCCY, can be upheld.”
MCCY knew earlier that the proposed transaction would leave NTUC Enterprise as the minority shareholder in the new Income entity, with a minority of board positions and no ability to nominate the chairman of the new entity, he noted.
These factors would not have caused MCCY to object to the transaction on their own, said Mr Tong.
“However, taken together with the proposed capital extraction and the lack of structural protections in the deal to ensure the continuation of Income’s social mission, cumulatively, they pose a risk that MCCY judges not to be acceptable,” he added.
“As such, it is the Government’s view that it is not in the public interest for the transaction, in its current form, to proceed.”
The government understands and accepts that the strategic purpose behind Income’s corporatisation exercise and potential partnership with Allianz was to strengthen it and make it more financially sustainable in the longer term, stressed the minister.
“The Government also does not have concerns over Allianz’s standing or suitability to acquire a majority stake in Income.”
The government is only concerned over the “terms and structure” of this specific transaction, with the context of the preceding corporatisation exercise, said Mr Tong.
Prime Minister Lawrence Wong reiterated this point. In a Facebook post, he wrote: “To be clear, the Government supports having a strong partner for Income, so as to strengthen its capital base and market position.”
Mr Wong added that the government’s concerns were with the structure and terms of this specific transaction, “particularly in the context of assurances which Income had given to MCCY when the former was corporatised in 2022”.
During his ministerial statement, Mr Tong said Income was a co-op and subject to the objectives and obligations of one, which was why the way Income was corporatised and the Section 88 exemption had to be taken into account.
The government’s assessment of the transaction’s viability “must go beyond prudential considerations alone”.
“Whilst we will not allow the proposed transaction to proceed, we are nonetheless open to any new arrangement which Income may wish to pursue, whether with Allianz or any other partners, so long as the concerns highlighted are fully addressed.”
