ING Leaving Latin America
By Marius | Published July 26, 2011
Dutch financial services company ING Groep NV reached an agreement this week to sell off most of its insurance businesses in Latin America to Colombian conglomerate Grupo de Inversiones Suramericana SA for a reported €2.6 billion (US$3.7 billion). The deal, expected to close by year’s end, is part of ING’s attempt to divest assets and repay the Dutch state and could also instigate a slew of activity from other multinational insurers in the region.
Grupo de Inversiones Suramericana, also known as Grupo Sura, will pay ING about €2.62 billion (US$3.7 billion) in cash and assume some €65 million (US$93.4 million) in debt held within the insurance operations, according to a statement released today. The deal includes ING’s pensions, investment management and life insurance businesses in Chile, Colombia, Mexico and Uruguay as well as two stakes in Peruvian insurers. This transaction is the largest ever foreign acquisition by a Colombian company and will establish Grupo Sura as a major player in Latin America’s insurance and pensions industry, a market primed for growth due to the region’s youth leaning demographics and promising economic forecast. According to ING, once the deal is completed Grupo Sura’s combined business will include over 25 million customers and US$120 billion worth of assets across Colombia, Chile, El Salvador, Mexico, Panama, Peru, the Dominican Republic and Uruguay.
The deal, subject to regulatory approval, values ING’s Latin American insurance assets at around six times its cumulative forecast 2011 earnings and at 1.8 times its estimated €1.5 billion (US$2.16 billion) book value, based on International Financial Reporting Standards. Included in the deal were the operations ING acquired from Banco Santander in 2008 for US$1.3 billion. The unit has over 10 million clients and €49 billion worth of assets under management in countries such as, Chile, Columbia, Peru and Mexico. Grupo Sura reportedly beat out rival bids from Chile’s Alvaro Saieh, Mexico’s Grupo Financiero Banorte SAB and Metlife, to acquire these businesses. Among the notable pension funds and insurance groups Grupo Sura also now controls are Integra of Peru and ING Fondos. The transaction hasn’t however included ING’s 36 percent stake in Brazilian insurance company Sul America SA, which will be sold separately at a later date.
Grupo Sura, with holdings in Colombia’s largest bank and pension fund, has been a dominant business force in its home country and has embarked on an aggressive expansion strategy in recent years, diversifying into cement and food production earlier this year. David Bojanini, chief executive of Grupo Sura, explained in a statement that their latest acquisition would enable them to take a leadership position in regional pension and insurance markets. “This acquisition expands Grupo Sura’s presence in the region and continues our growth and internationalization strategy. ING’s operating strength and experience will complement our existing platform and will drive value for our current and future investors”, he said.
Grupo Sura will look to add significant value to its portfolio through this transaction, with an expected US$172 million in additional dividends from its investments by 2012. David Bojanini added that recent acquisitions, once integrated, will maintain Grupo Sura commitment to growth and strong corporate governance. “The similarities between the ING business model and the pension operations of Grupo Sura create an opportunity to increase the value of services for our clients. This acquisition strengthens our participation in the market and confirms our commitment to a variety of Latin American countries,” he said in a statement.
ING meanwhile expect to make a €1 billion (US$1.44 billion) profit from the sale of its Latin American operations. The proceeds will be used to further reduce leverage on the company’s insurance unit by approximately €2.8 billion (US$4 billion). The price ING managed to sell for has been considered a success by market analysts given the circumstances. The Netherlands’ biggest financial services company began selling its worldwide insurance operations earlier this year in preparation for a European Union mandated split and subsequent sale of its insurance operations. ING must divest its entire insurance division and become a pure banking business, to meet the conditions of the €10 billion (US$14.38 billion) bailout package it received from the Dutch government during the 2008 global financial crisis. ING still owes some €3 billion (US$4.3 billion) on its bailout, plus another €1.5 billion (US$2.16 billion) in penalties, and plans to fully pay back the government by May 2012.
The deal marks the latest in a series of disposals by ING as it attempts to repay the Dutch state. Earlier this month the company sold off its European auto leasing division to BMW for €637 million (US$916 million). In June, ING sold its American online banking service, ING Direct USA, to Capital One Financial for around US$9 billion in cash and stock. ING is planning initial public offerings to divest its remaining insurance and investment management businesses in the US, Europe and Asia, worth between €18-19 billion (US$26-27.5 billion), but have yet to set a date.
While ING is probably loathe to be parting with its valuable presence in Latin America, the company is making noted progress with its mandated divestments. ING released a statement that heralded the sale of its assets to Grupo Sura as “the first major step in the divestment of ING’s insurance and investment management activities.”
Jan Hommen, CEO of ING Group, was proud of the work his company had done in the region and was sure Grupo Sura would continue to develop the Latin American region into a first rate business environment for insurance. “Over the years we have built a first rate Latin American franchise with a terrific management team and leading market positions in most countries we operate in. I am pleased that we have found in Grupo Sura a very solid and complementary owner with the ambition to further build on the success of this leading Latin American pensions and insurance provider, in the interests of both our customers and our employees,” he said in a statement.
Insurance Companies Mentioned
ING provides banking, investments, life insurance and retirement services and operates in more than 50 countries. It serves more than 85 million private, corporate and institutional customers in Europe, North and Latin America, Asia and Australia.
Grupo de Inversiones Suramericana is a Medellin-based conglomerate that either directly or through its subsidiaries holds stakes in over 100 companies belonging to the insurance, energy, food and finance sectors amongst many others. With over 60 years experience, its financial businesses enjoy leading positions, including the number one player in insurance and pensions in Colombia.