Monday, October 26, 2009

ING to Raise $11.3 Billion, Sell Insurance Units

. Monday, October 26, 2009

By stockOzone team

ING Groep NV plans to raise 7.5 billion euros ($11.3 billion) in a rights offering and sell its insurance businesses as it plans to repay a 10 billion-euro government lifeline sooner than originally planned.

ING will use the proceeds of the share sale to bolster capital and repurchase 5 billion euros of core tier 1 securities held by the government, the Amsterdam-based company said today. The company plans to shed the insurance units through initial public offerings, sales to other companies, or a combination thereof, over the next four years.

The company is selling shares after its stock rose 59 percent this year in Amsterdam, beating an 18 percent gain in the 36-member Dow Jones Stoxx 600 Insurance Index. ING, created by the 1991 merger of insurer Nationale Nederlanden and NMB Postbank Group, said the decision to sell its insurance units is part of a restructuring plan filed with the European Commission.

“What used to be a benefit became a negative,” Chief Executive Officer Jan Hommen said in an interview. “Ideally, it’s nice to keep the businesses together, but the market will have to tell us whether that’s possible and the market will have to tell us what the price is.”

ING said it reached an agreement with the Dutch state to allow early repayment of the government aid and it plans to repurchase the core tier 1 securities in December. Hommen declined to say when he expects to repay the rest of the aid.

Repayment Premium

In addition to the face value of the securities, ING will have to pay a premium and accrued interest of as much as 950 million euros. Further repayments will be financed from divestments and internal resources, ING said.

The EC also required ING to make additional payments to the government for an agreement that transferred the risk on 21.6 billion euros of mortgage assets to the state earlier this year. The annual extra payments will amount to a net present value of 1.3 billion euros, which ING will book as a one-time charge in the current quarter.

In addition, ING must sell its U.S. online banking business by the end of 2013 to get European Union approval for its restructuring plan, which was a condition for receiving state aid. The company expects to get approval for the plan before a Nov. 25 shareholders meeting.

The restructuring measures, including steps already taken, will probably result in a pro forma balance sheet reduction of around 600 billion euros by 2013, the company said.

ING said it will probably post a third-quarter profit, excluding divestments and special items, of 750 million euros, compared with a loss of 568 million euros in the same period last year.

Disclosure: Author does not own any of the stocks discussed here.

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