60% Right Share issue of NLG Insurance Company is open till Chaitra 12, 2076; look at essential details about the company

Wed, Mar 11, 2020 8:06 AM on Exclusive, Financial Analysis,
60% Right...

Company Profile

NLG Insurance Company Ltd. (NLG) was incorporated as the National Life & General Insurance (NLGI) in 1988 as an entity licensed to carry out both life and general insurance businesses. In 2005, NLG was spun off as a separate general insurer, following the change in regulation, requiring life insurers and general insurers to be separate entities.

NLG is a medium-sized player in the Nepalese general insurance industry with ~6.5% share in the industry GPW and NPW in FY 2018. As on mid-April 2019, NLG has been in operation with 66 branches (including head office) across the nation extending after sales services.

The paid-up capital and the net worth of NLG as of mid-April 2019 stood at ~NPR 640 million and ~NPR 1,678 million respectively. National life Insurance (a life insurer promoted by same investor group) holds 50% stake in NLG with the rest being held in a small proportion by individuals and institutions (including ~3% stake from two Class A commercial banks viz. Rastriya Banijya Bank & Prime Commercial Bank).

During FY2018, NLG reported a profit after tax of ~NPR 253 million (NPR 231 million in FY 2017) over an asset base of NPR 2,704 million as of mid-July 2018 (NPR 2,307 million as of mid-July 2017). During 9M FY 2019, NLG reported a profit after tax of ~NPR 153 million.

About the issue

NLG Insurance Company (NLG) is issuing 60% right shares i.e. 3,842,437.50 units at par of Rs.100 to raise capital worth Rs.38.42 Crore. The issue is open from Falgun 22, 2076 to Chaitra 12, 2076. As per recently amended regulation by SEBON now right shares issue will open just for 21 days. The book closure date for the issue was on Magh 27, 2076.

Laxmi Capital Market Limited has been appointed as the issue manager.

ICRA Nepal has assigned [ICRANP] IPO Grade 3, indicating average fundamentals to the proposed rights issue amounting to NPR 384.20 million of NLG Insurance Company Limited (NLG).

The company's paid-up capital as of 2075/76 end stood at Rs.64.04 Crore. Post adjustment of 10:6 rights issue, it will reach Rs.1.02 Arba meeting the capital mark.

Capital Structure

Shareholding Composition

Board of Directors

Management Team

Credit Rating

ICRA Nepal has assigned [ICRANP] IPO Grade 3, indicating average fundamentals to the proposed rights issue amounting to NPR 384.20 million of NLG Insurance Company Limited (NLG). NLG has proposed a 60% rights issue of 3,842,000 numbers of equity shares of face value NPR100 each, to be issued to the existing shareholders at par. The proposed rights issue is being made to comply with the revised minimum paid up capital requirement for general insurers 2 as prescribed by the Insurance Board of Nepal.

Strengths

  • Long track record in the industry (operating since 1988) and its experienced board and management team.
  • Adequate reinsurance arrangements, including catastrophic provisions and strong profile of the lead reinsurer, which provides comfort to NLG’s claims-paying ability and its quality of maintaining solvency in the event of catastrophic events.
  • Improved investment outlook for NLG, given the hardening of the interest rate across the banking sector deposits, wherein a major portion of its investment portfolio is concentrated.

Weaknesses

  • Declining market share (6.5% share till FY 2018) and high concentration in the motor segment (84% of NPW).
  • Premium growth rate has lagged behind the industry average for the last two to three years, affecting its scale of operations vis-à-vis the industry peers.
  • Incremental growth and the return prospect of NLG are likely to be determined by its ability to grow the customer base and diversify its revenue stream across different segments.
  • With sizeable equity injection proposed shortly and expectations of increased operating expense commensurate with the recent branch expansion, the return indicators are expected to remain muted over the medium term.

Financials

Source: ICRA Ratings Nepal, Prospectus