KARACHI: PICIC Insurance is up for a merger with Crescent Star Insurance, the latter announced on Wednesday through a public notice.
“Our board of directors has authorised the CEO of the company to sign an MoU for due diligence of PICIC Insurance, which may lead to possible merger of PICIC Insurance with Crescent Star Insurance,” it said, adding that the deal, if approved, will be subject to regulatory approvals by the Securities and Exchange Commission of Pakistan (SECP) and Competition Commission of Pakistan (CCP).
Pakistan’s non-life insurance industry is dominated by big players. Out of the 30 private-sector companies operating in the non-life segment, the top three companies – Adamjee Insurance, EFU General Insurance and Jubilee General Insurance – controlled about 52% of the industry’s total assets by the end of September 2015, the latest period for which data is available.
PICIC Insurance and Crescent Star Insurance are among the smaller players in the country’s non-life insurance industry. Each of the two companies has total assets of less than Rs1 billion, which makes them a part of the nine-member group of the smallest non-life insurance companies.
In terms of profitability, however, Crescent Star Insurance is far better than PICIC Insurance. The former posted a net profit of Rs99.1 million in the first nine months of 2015 while the latter made a net loss of Rs16.6 million over the same period. Both companies were in loss at the end of the first nine months of 2014.
Speaking to The Express Tribune, Taurus Securities Head of Research Zeeshan Afzal said PICIC Insurance faced solvency issues, as its accumulated losses put a big dent into its paid-up share capital of Rs350 million. Its equity amounted to just Rs82.9 million at the end of September 2015 because of the accumulated losses of Rs267 million.
PICIC Insurance had announced plans in September 2015 to raise Rs350 million through right shares, which would provide it with fresh equity and enable it to meet its minimum solvency requirement. However, it withdrew the right issue in January and sought the regulator’s approval for issuing 70 million right shares at a discount of Rs5 per share instead.
In the case of a merger, sponsors of both companies will keep their stakes in the merged entity. However, Afzal said the board of the merged entity will be dominated by the sponsors of Crescent Star Insurance, as its equity (Rs451.5 million) was higher than the current equity of PICIC Insurance (Rs82.9 million).
Crescent Star Insurance is already on an expansion spree, with its eyes set on steel and food sectors. It is investing up to Rs450 million in Dost Steels by underwriting the steel manufacturer’s shares. Similarly, it has also signed a franchise agreement with the Golden Chick American Tender Fried chain of restaurants through its subsidiary Crescent Star Foods.
Meanwhile, Crescent Star Insurance posted a net profit of Rs81.6 million for 2015 on Wednesday as opposed to a loss of Rs35.8 million in the preceding year. The stock of Crescent Star Insurance decreased nominally to close at Rs10.72 per share.
Published in The Express Tribune, April 7th, 2016.