Dutch financial majors ING and Aegon, which have operations in India, have now availed government bailout funds to manage their capital needs amidst the ongoing financial turmoil. Earlier, US-based American International Group (AIG) which has two insurance joint ventures in India, along with a partnership with the Tata Group, had similarly received a government bailout package to manage its capital requirement.
According to reports, ING Groep NV is the first Dutch financial-services company to draw on the government’s 20-billion euro ($25 billion) bailout package. Aegon became the latest Dutch financial company to tap into government funds on Tuesday, taking euro 3 billion ($3.7 billion) and scrapping a dividend payment to shore up capital. ING has exposure in the Indian banking sector and through a joint venture with Vysya Bank in the insurance sector. Recently, Aegon set up a life insurance joint venture with Raligare, which is owned by Malvinder Singh who recently exited Ranbaxy by selling his entire stake to Japan’s Daiichi Sankyo.
The ING Group also sold its Taiwan-based life insurance company to Fubon Financial Holding a day after accepting a government bail-out package. The group has announced a series of changes to its supervisory board in the wake of the loan. International rating agency Fitch had ING’s outlook cut to “negative” citing a weakening economy. The downgrade reflects the “deteriorating Dutch and global economic environment and its potential unfavourable impact on the ING Group’s franchise and profits”, Fitch said in a statement on Tuesday. It cut the outlook from “stable” and reduced ING Bank’s rating from ‘A/B’ to the third highest grade – ‘B’. ING expects to announce a net loss of euro 500 million after reporting euro 1.6 billion in writedowns, Fitch said. “Further writedowns cannot be ruled out if the market conditions worsen,” the statement added.
Aegon, based in The Hague, said in a statement that now expected impairments of about euro 400 million ($500.3 million) before taxes and a net loss of euro 350 million ($437.7 million) for the third quarter. The Dutch government will also appoint two directors to Aegon’s supervisory board who will oversee auditing, compensation and nominations, and Aegon’s senior management will forego all performance-based income, in cash, options or shares, for 2008.
The capital injection will be provided to Aegon’s largest shareholder, a foundation that controls 34% of the company’s voting rights. This will in turn buy non-voting perpetual securities, convertible into shares, from the company. Terms of the injection are nearly identical to the deal between the Dutch government and financial group ING that was announced last week. After one year, Aegon will be able to buy back the securities it issued at 150% of face value, or euro 6 per share, or convert them into shares. The securities carry a coupon of at least 8.5%. Earlier in October, the Dutch government said that it would set aside euro 20 billion ($25.01 billion) to protect financial companies. Dutch companies typically pay out dividends twice a year, and Aegon has decided to forego its end-2008 dividend. It paid out a dividend of euro 0.30 ($0.37) in September.