ING Groep NV (INGA), the biggest Dutch financial-services company, will increase capital at its European insurance unit before selling shares in the business this year, the final step of a restructuring program imposed after a 2008 bailout.
ING will inject 850 million euros ($1.2 billion) into NN Group NV, a combination of its European and Japanese operations, according to a statement today. It will then sell secondary shares in the initial public offering, which is planned for Amsterdam, Chief Executive Officer Ralph Hamers told reporters.
ING was forced to shed insurance operations from the U.S. to Malaysia to comply with a European Union restructuring plan, a condition for receiving a government bailout in 2008. The NN Group sale, which must be completed before the end of 2016, comes after ING cut back its ownership in its U.S. business, now named Voya Financial Inc. (VOYA:US), to about 43 percent.
“The restructuring program remains on track,” Lemer Salah, an Amsterdam-based analyst at SNS Securities, said by e-mail. Following the capital boost there’s “more upside potential on delivering ahead of plan on the remaining decreasing restructuring issues,” he said.
ING shares fell 0.3 percent to 10.16 euros at 1:11 p.m. in Amsterdam, paring gains this year to 0.6 percent. That compares with a 0.5 percent decline in the 38-company Stoxx Insurance 600 Index in 2014. The company’s market value has more than tripled since January 2009, when it began its dismantling, to 39 billion euros.
The company, formed in the 1991 merger of a bank and an insurer, has been forced to sell some assets below book value to complete its disposal program. ING reported its first quarterly loss in more than four years today after booking a 2 billion-euro accounting loss from selling assets.
The net loss was 1.92 billion euros compared to a profit of 1.9 billion euros a year earlier. The results also include a 1.1 billion-euro charge to settle obligations related to its Dutch pension fund. The company last reported a loss in the fourth quarter of 2009, which totaled 712 million euros after it set aside money for extra payments to the government.
Excluding one-time items, ING recorded a 16 percent decline in profit to 988 million euros. That compared with the 1.07 billion-euro average of six analyst estimates. Pretax earnings from ING’s commercial banking unit fell 31 percent to 471 million euros as “challenging market conditions” led to lower income in the rates and foreign currency businesses, ING said.
NN Group reported a 61 percent increase in operating income to 274 million euros, helped by higher investment returns and cost cuts.
The solvency ratio of NN Group, a measure of an insurer’s financial strength, fell to 249 percent at the end of March from 254 percent a year earlier, ING said. The ratio will rise to 277 percent following the capital injection from its parent and a subordinated debt sale last month, it said.
“With this capital injection we do obtain the regulatory green light to go forward with the IPO,” Chief Financial Officer Patrick Flynn said on a conference call. “We can now continue to execute on the final steps which are within our control” though “we still obviously need a good IPO market.”
NN Group has mostly life insurance operations in the Netherlands, Poland, Turkey, Czech Republic, Slovakia, Romania, Hungary, Bulgaria, Belgium, Spain, Greece, Luxembourg and Japan. It also includes ING’s asset management arm, with 168 billion euros in assets under management at the end of the first quarter.
ING CEO Hamers said he’s confident that sales of the company’s remaining stake in Voya, a 10 percent holding in Sul America SA (SULA11) in Brazil and NN Group will generate sufficient proceeds to cover debt at group level that must be paid to allow the company’s final breakup. Debt stood at 3.8 billion euros at the end of the first quarter, and will increase by 875 million euros due to the capital injection announced today, ING said. Based on market values of Voya and Sul America, ING would have to raise 400 million euros in the NN Group IPO, according to a presentation today.
Three Asian investors, including RRJ Capital Ltd., have agreed to invest 1.28 billion euros in NN Group before the unit’s IPO, ING said last month. That represents a placement of about 20 percent, assuming NN Group can be valued at about 6.5 billion euros, the average estimate of five analysts surveyed by Bloomberg. The unit had a book value of 15 billion euros at the end of March, ING said today.
ING said in March it plans to resume dividend payments for the first time since 2008 after it pays off 10 billion euros in government aid with interest, expected no later than May 2015. The Dutch government came to the rescue after ING was hit with heavy losses on assets backed by U.S. mortgages during the financial crisis.
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