Oct. 26 (Bloomberg) -- ING Groep NV plans to raise 7.5 billion euros ($11.3 billion) in a rights offering and sell its insurance units as the biggest Dutch financial services company seeks European Union approval for a taxpayer-funded bailout.

ING, which traces its roots to 1743, fell the most in seven months after saying it planned to sell shares to finance the repurchase of 5 billion euros of core tier 1 securities held by the government. It will shed the insurance units through initial public offerings and sales to other firms over the next four years, the Amsterdam-based company said today.

The measures are part of a restructuring plan filed with the European Commission, the EU executive, to garner approval for state aid, including a 10 billion-euro cash injection and guarantees on 21.6 billion euros of mortgage assets. ING has risen 30 percent this year in Amsterdam, beating an 13 percent advance in the 36-member Dow Jones Stoxx 600 Insurance Index.

“ING’s settlement with the EU competition commission looks less favorable than we had hoped,” Chris Hitchings, a London- based analyst at Keefe, Bruyette & Woods Ltd., said in a note to investors. Hitchings, who rates ING “market perform,” said he had estimated a share sale of 5.5 billion euros.

ING dropped 2.10 euros, or 18 percent, to 9.56 euros in Amsterdam trading, valuing the company at 19.7 billion euros. Other banks facing EU scrutiny also fell, led by Brussels-based KBC Groep NV, which dropped 7.5 percent to 31.54 euros and London-based Lloyds Banking Group Plc, which declined 7.2 percent to 89.34 pence.

‘No Longer a Benefit’

The commission is reviewing bailouts across Europe to ensure state aid doesn’t give some banks an unfair advantage. It forced Commerzbank AG, Germany’s second-biggest bank, in May to sell assets, and has indicated that Lloyds and Royal Bank of Scotland Group Plc may be forced to sell assets and branches.

ING was created by the 1991 merger of insurer Nationale Nederlanden and NMB Postbank Group. Chief Executive Officer Jan Hommen, who took over in January, said he would try to sell the insurance business as a single entity, rather than break it up.

“What used to be a benefit became a negative,” Chief Executive Officer Jan Hommen said in an interview on Bloomberg television.

ING’s insurance businesses have a book value of about 13 billion euros, said Ivan Lathouders, a Brussels-based analyst at Bank Degroof who doesn’t have a rating on the company.

“The number of insurance activities for sale is big, and the question is who is available to buy them,” Lathouders said.

Repayment Premium

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. 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.

Goldman Sachs Group Inc., JPMorgan Chase & Co. and ING are managing the share sale. Further repayments will be financed from divestments and internal resources, ING said. Hommen declined to say when he expects to repay the rest of the aid.

ING said it expects to get final approval for the restructuring plan on Nov. 18.

“We have made very good progress in contacts with the Dutch authorities in recent weeks on the restructuring of ING and the valuation of impaired assets,” Jonathan Todd, a spokesman for the commission, said in an e-mail. “We intend to take a decision in the next few weeks.”

U.S. Unit

The commission will require ING to sell its U.S. online banking business by the end of 2013, the company said. ING also plans to put some Dutch retail banking assets, including the Westland Utrecht mortgage bank, into a new company and sell it.

ING said it will also have 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.

The restructuring measures, including steps already taken, will probably result in a pro forma balance sheet reduction of around 600 billion euros by 2013, ING said. ING said job cuts this year amounted to 10,400, or 8.3 percent of its workforce, by the end of the third quarter. The company said in January that it planned to eliminate 7,000 jobs as part of plan to reduce costs by 1 billion euros.

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. Insurance profit was about 500 million euros, and banking earnings amounted to 250 million euros, ING said.

“Despite its labored interim results, ING is showing progress in strengthening its financials,” Luis Maglanoc, a Munich-based bank and insurance analyst at UniCredit SpA, said in an investor note. “ING’s balance sheet remains sound, bolstered by” the state aid, said Maglanoc, who rates ING “marketweight.”

To contact the reporter on this story: Martijn van der Starre in Amsterdam at vanderstarre@bloomberg.net

Last Updated: October 26, 2009 13:05 EDT