NTUC Income shares

[Jacmar]

Minority investors (who were not accredited investors) finally have a chance to exit now

Income Insurance receives Pre-Conditional Voluntary Cash General Offer from Allianz Europe B.V.

NTUC Enterprise currently holds approximately 72.8% of the Shares in Income Insurance, with the remaining held by minority shareholders. As stated in the Pre-Conditional Offer Announcement, NTUC Enterprise and the Offeror have entered into a deed of irrevocable undertaking (the “Irrevocable Undertaking”) under which, among other things, subject to the fulfilment of the Pre-Condition and a Voluntary Cash General Offer (“Offer”) being formally made by the Offeror, in the event that the acceptances by the shareholders of Income Insurance immediately prior to the close of the Offer (excluding NTUC Enterprise’s acceptance of the Offer pursuant to the Irrevocable Undertaking) is less than 54,667,790 Shares, to duly accept the Offer in respect of such number of Shares which would result in the Offeror acquiring at least 51% of the Shares at the closing date of the Offer.

https://links.sgx.com/FileOpen/4.%20NTUC...eID=810055

Is S$40.58 per share offer fair?

If I am the IFA I would say not fair but reasonable considering it's an unlisted entity.
Not fair bcos OCBC/GE deal was done at 1.54 p/bv but here it's done only at 1.37 times. why the discount? OPMI can go to the EGM to stir some noise on this issue. In any case it's a done deal since NTUC Enterprise has agreed to sell their shares to let Allianz have 51%. I think the timing of this is not great as interest rate is coming down and their bond holding valuations should go up thus increasing the BV.

I will be accepting the offer....9 mths wait and without the 2024 div(sigh). Personally I never like to hold unlisted entity given my age. It's a rewarding exit after holding it for decades and getting 6% div along the way. 

Kudos to the Chairman/CEO for working themselves out of a job?

[xierwang]

Minority investors (who were not accredited investors) finally have a chance to exit now

Income Insurance receives Pre-Conditional Voluntary Cash General Offer from Allianz Europe B.V.

NTUC Enterprise currently holds approximately 72.8% of the Shares in Income Insurance, with the remaining held by minority shareholders. As stated in the Pre-Conditional Offer Announcement, NTUC Enterprise and the Offeror have entered into a deed of irrevocable undertaking (the “Irrevocable Undertaking”) under which, among other things, subject to the fulfilment of the Pre-Condition and a Voluntary Cash General Offer (“Offer”) being formally made by the Offeror, in the event that the acceptances by the shareholders of Income Insurance immediately prior to the close of the Offer (excluding NTUC Enterprise’s acceptance of the Offer pursuant to the Irrevocable Undertaking) is less than 54,667,790 Shares, to duly accept the Offer in respect of such number of Shares which would result in the Offeror acquiring at least 51% of the Shares at the closing date of the Offer.

https://links.sgx.com/FileOpen/4.%20NTUC...eID=810055

Is S$40.58 per share offer fair?

If I am the IFA I would say not fair but reasonable considering it's an unlisted entity.
Not fair bcos OCBC/GE deal was done at 1.54 p/bv but here it's done only at 1.37 times. why the discount? OPMI can go to the EGM to stir some noise on this issue. In any case it's a done deal since NTUC Enterprise has agreed to sell their shares to let Allianz have 51%. I think the timing of this is not great as interest rate is coming down and their bond holding valuations should go up thus increasing the BV.

I will be accepting the offer....9 mths wait and without the 2024 div(sigh). Personally I never like to hold unlisted entity given my age. It's a rewarding exit after holding it for decades and getting 6% div along the way. 

Kudos to the Chairman/CEO for working themselves out of a job?

Thank you for your input.

Actually, this is not ideal valuation since the CO was hit hard during past years thus BV affected badly, I think BV should recover soon, very likely I won't accept the offer and keep my shares with the new owner.

It's a rewarding Invesment for me as the shares are free for most of us after holding it for decades and getting 6% div and bonus shares along the way.

[weijian]

Is S$40.58 per share offer fair?

If I am the IFA I would say not fair but reasonable considering it's an unlisted entity.
Not fair bcos OCBC/GE deal was done at 1.54 p/bv but here it's done only at 1.37 times. why the discount? OPMI can go to the EGM to stir some noise on this issue. In any case it's a done deal since NTUC Enterprise has agreed to sell their shares to let Allianz have 51%. I think the timing of this is not great as interest rate is coming down and their bond holding valuations should go up thus increasing the BV.

I will be accepting the offer....9 mths wait and without the 2024 div(sigh). Personally I never like to hold unlisted entity given my age. It's a rewarding exit after holding it for decades and getting 6% div along the way. 

Kudos to the Chairman/CEO for working themselves out of a job?

Hi Jacmar,

Comparing GEH's BV to Income's BV For a start, I think it is not really very comparable. Mainly due to 3 reasons:

(1) GEH has a 70% owned subsidiary Lion Global Investors, an AUM manager with 70billion AUM. It is listed at cost on the balance sheet and not even consolidated at Group level. If we were to take a 3% of AUM as valuation of Lion Global Investors, that would add ~2bil to the NAV.

(2) In terms of net premiums (and equity value), GEH is 3x bigger than Income. Generally for money managers, the bigger you are, the smaller your cost base.

(3) GEH has franchises in other countries but Income seems to be limited to Spore. For example, GEH donated 785mil sgd to a Malaysian B40 fund in FY20 to allow its Msian franchise to keep its 100% stake. This 785mil was expensed and not capitalized. This is the barrier to operate in Msia and so GEH's Msian franchise has some "intangible value" not reflected on BS as well.


So how can we think of Allianz's offer? Since Income is not listed, I do not think an IFA will be appointed. However, since we have a recent case of OCBC's offer for GEH and an IFA was appointed, maybe we could leverage the IFA's ideas.

From GEH's IFA letter, the IFA (E&Y) believes that a fair value for GEH lies between 0.8-1x EV (embedded value). Income's EV is not available from its AR and Mgt also decline to disclose it from AGM minutes. However, I managed to google a copy of Phillip Capital's valuation report that has a private valuation of Income's EV.

The disclaimer here is that it is calculated based on 2022 numbers but we could argue 2022's EV should be higher than the current, as bond yields (and the yield curve) were more friendly to insurers back in 2022.

Income's embedded value = 2224/0.52 ~ 4.28bil
EV per share (share count taken from latest AR) = 4.28bil/107.2mil = 40sgd

Allianz's offer of 40.58sgd is not too fair from ~1x EV (of FY22 valuation). So do you think it would be "unfair"?

Phillip Capital valuation of Income (pg4 for EV):
https://www.poems.com.sg/downloads/Incom...202024.pdf

[Jacmar]

Is S$40.58 per share offer fair?

If I am the IFA I would say not fair but reasonable considering it's an unlisted entity.
Not fair bcos OCBC/GE deal was done at 1.54 p/bv but here it's done only at 1.37 times. why the discount? OPMI can go to the EGM to stir some noise on this issue. In any case it's a done deal since NTUC Enterprise has agreed to sell their shares to let Allianz have 51%. I think the timing of this is not great as interest rate is coming down and their bond holding valuations should go up thus increasing the BV.

I will be accepting the offer....9 mths wait and without the 2024 div(sigh). Personally I never like to hold unlisted entity given my age. It's a rewarding exit after holding it for decades and getting 6% div along the way. 

Kudos to the Chairman/CEO for working themselves out of a job?

Hi Jacmar,

Comparing GEH's BV to Income's BV For a start, I think it is not really very comparable. Mainly due to 3 reasons:

(1) GEH has a 70% owned subsidiary Lion Global Investors, an AUM manager with 70billion AUM. It is listed at cost on the balance sheet and not even consolidated at Group level. If we were to take a 3% of AUM as valuation of Lion Global Investors, that would add ~2bil to the NAV.

(2) In terms of net premiums (and equity value), GEH is 3x bigger than Income. Generally for money managers, the bigger you are, the smaller your cost base.

(3) GEH has franchises in other countries but Income seems to be limited to Spore. For example, GEH donated 785mil sgd to a Malaysian B40 fund in FY20 to allow its Msian franchise to keep its 100% stake. This 785mil was expensed and not capitalized. This is the barrier to operate in Msia and so GEH's Msian franchise has some "intangible value" not reflected on BS as well.


So how can we think of Allianz's offer? Since Income is not listed, I do not think an IFA will be appointed. However, since we have a recent case of OCBC's offer for GEH and an IFA was appointed, maybe we could leverage the IFA's ideas.

From GEH's IFA letter, the IFA (E&Y) believes that a fair value for GEH lies between 0.8-1x EV (embedded value). Income's EV is not available from its AR and Mgt also decline to disclose it from AGM minutes. However, I managed to google a copy of Phillip Capital's valuation report that has a private valuation of Income's EV.

The disclaimer here is that it is not calculated based on 2022 numbers but we could argue 2022's EV should be higher than the current, as bond yields (and the yield curve) were more friendly to insurers back in 2022.

Income's embedded value = 2224/0.52 ~ 4.28bil
EV per share (share count taken from latest AR) = 4.28bil/107.2mil = 40sgd

Allianz's offer of 40.58sgd is not too fair from ~1x EV (of FY22 valuation). So do you think it would be "unfair"?

Phillip Capital valuation of Income (pg4 for EV):
https://www.poems.com.sg/downloads/Incom...202024.pdf

Hi weijian, yes I do agree that size matters a lot. This is probably the reason to justify a discount.

My bone of contention is that Income has hit a BV of $40 before the rate cycle kicks in and affected their bond valuation/EV. Now the interest rate is slowly normalising, the EV should have been much higher.  

I would read the Poems report with a pinch of salt. Their fair value of $20 is so far off the mark...laughable. Do they really know the EV of Income? I doubt so.

In any case for what's worth, the former CEO TKL said he is accepting the offer.

[weijian]

Hi weijian, yes I do agree that size matters a lot. This is probably the reason to justify a discount.

My bone of contention is that Income has hit a BV of $40 before the rate cycle kicks in and affected their bond valuation/EV. Now the interest rate is slowly normalising, the EV should have been much higher.  

I would read the Poems report with a pinch of salt. Their fair value of $20 is so far off the mark...laughable. Do they really know the EV of Income? I doubt so.

In any case for what's worth, the former CEO TKL said he is accepting the offer.

Hi Jacmar,

To be fair to Phillip Capital, they were not trying to assess "fair value" for Income in a take-over scenario. IIRC, they were simply trying to price an unlisted share and so, I believe it is fair that they use the valuation implied by GEH's market price. Of course, subsequently OCBC and GEH's IFA helped us understand the true fair valuation of an insurer, in the absence of a change in controlling stake. Then, Allianz has helped us to understand the valuation of an insurer when there is a change in control.

As for EV of Income, Phillip Capital did not do it themselves but employed an actuarial company to derive the EV.

I believe everyone knows that it is only a matter of time before NTUC Enterprise fully sells out to Allianz - and that price will probably be (much) higher since EV will continue to grow/recover. NTUC Enterprise is probably waiting for that recovery to completely sell out. But then again, pretty sure TKL is wise enough to know whether it is worth waiting together with them!

[weijian]

When an insider (ex high ranking employee) comes out, there are probably some issues. The only differences is which side is one leaning towards.

ex-CEO Tan says Income is a social enterprise. But the 3x increase in BV since the original folks injected their money at 10sgd/share, doesn't suggest it is really one though. It might quack and sound like a duck, but probably not really a duck.

ex-CEO Tan also said that the 630mil capital injection at 10sgd wasn't "fair". Was he expecting the same offer to be open to minorities? When Warren Buffett bought preference shares at preferential rates at all those banks during GFC2008, was it fair?

NTUC Enterprise, Income Insurance fend off former CEO’s criticisms of proposed sale to Allianz

Tan was CEO of NTUC Income from 2007 to 2013, and the group CEO of NE from 2013 to 2017. He criticised NE for reneging on its commitment when it was allowed to raise its stake in the insurer at par value of S$10 per share and at the expense of dilution to minority shareholders.

He gave three reasons why the regulators should step in and reject the sale, including the “even more important serious corporate governance issue”.

https://www.businesstimes.com.sg/compani...le-allianz

[weijian]

I am pretty sure that the resistance will seize onto the Allianz CEO's prediction of "double digit ROI", to make their point across.

That said, Allianz CEO has also revealed that "they were approached by Singapore", which I would assume is not the Gov, but NTUC Enterprise.

Income acquisition to give double-digit ROI, strong home base in Singapore: Allianz CEO

Baete said that while Income is a market leader in P&C insurance and among the top five providers of health and life insurance, the company has been losing market share and profitability relative to the rest of the industry.

He said Allianz was approached by Singapore to explore combining its capabilities in these segments with Income’s local franchise “to bring Income into the 21st century and make them successful”.

https://www.businesstimes.com.sg/compani...llianz-ceo

[specuvestor]

Agree with Prof Tommy Koh on “knowing the price of everything but the value of nothing”

The value of NTUC was a labour movement with a social objective of being price anchors on necessities. It has worked well inline with our brand of labour movement to control inflation. I’m surprised our leaders haven’t learnt from SMRT saga

https://theindependent.sg/ntuc-income-pr...f-nothing/

[weijian]

Privatising social gains is a NO-go. So, there are "2 billion surplus capital" which either have to be "donated away", OR retained for carrying out its social mission.

My guess is that Allianz wouldn't offered what it did back in July, without the capital reduction expectations. Talk about information asymmetry.

Government rejects Income-Allianz insurance deal in current form, but door remains open to any new arrangement

The government thus accepted Income’s rationale for the corporatisation and granted the exemption, allowing it to carry over about S$2 billion in surplus to the new corporate entity.

Allianz proposed that Income reduce its existing share capital and return this capital to shareholders, and projected that the insurer could return some S$1.85 billion in cash to shareholders within the first three years after the completion of the transaction.

Progress Singapore Party Non-Constituency MP Leong Mun Wai asked why the public had not been told earlier about the capital extraction proposal.

https://www.businesstimes.com.sg/singapo...rrangement

[EnSabahNur]

“knowing the price of everything but the value of nothing”

Well said