Long-simmering speculation that insurer ING Canada will be sold heated up Friday, as its Dutch parent moves to shore up its balance sheet.
ING Canada is a leader in the fragmented Canadian property and casualty insurance business - that's cars and homes. The TSX-listed company has been seen as a takeover target for two years, after parent ING Groep decided P&C insurance was not a core business, and sold insurance subsidiaries in several countries.
With the credit crunch hammering European financial institutions, there has been speculation ING Groep will need to strengthen its balance sheet, and revisit its commitment to Canada. Dow Jones reported Friday that a share issuance or dividend suspension is not out of the question, and ING Groep responded by saying it is adequately capitalized.
“We believe a need for capital by the parent company could be a catalyst to a potential sale of ING Canada, given its non-core position within ING Groep,” said a report Friday from RBC Capital Markets analysts Dennis Westfall and Andre-Philippe Hardy. However, the pair noted this is not an ideal time to sell, as “the most logical potential buyers (Aviva, Royal & Sun Alliance and AXA) are likely in a capital-preservation mode, given the turbulent macro environment.”
If ING Groep does need to raise cash, it could also simply sell all or a large part of its 70 per cent stake in the Canadian subsidiary to public market investors. However, simply blasting shares into the market means the parent company doesn't receive a takeover premium on its stake. And over the long term, there is a universal expectation that the Canadian P&C market will consolidate around the strongest players.
ING Canada has a $4.3-billion market capitalization and qualifies as a relatively decent defensive play in a lousy market, with shares down 11 per cent year-to-date. The two RBC Capital Markets analysts noted that the Canadian insurer does not face the same funding, capital and credit issues as banks and life insurers, as “the company has zero debt, $1.4 billion in excess capital (including debt capacity) and a conservative bond portfolio.”
