Himalayan General Insurance receives Icra Grade 3 for upcoming 166.67% right issue

ICRA Nepal has assigned an “[ICRANP] IPO Grade 3”, indicating average fundamentals to the proposed rights issue of Himalayan General Insurance Limited (HGI) amounting Rs 64.20 crore. The process to issue right share of HGI is on review in Securities Board of Nepal (SEBON). The insurance company is proposing to issue 1:1.6667 (166%) rights share of 6,420,000 numbers of equity shares at the face value of Rs 100 each to be issued to the existing shareholders at par. As per ICRA Nepal, the grading is constrained by low business growth vis-à-vis industry average (past 5 years CAGR5 growth of 15% in GPW6 and 4% in NPW7 vs. industry average growth of 21% and 19% respectively), high concentration among top accounts (top 10 clients accounted for 63% of GPW in FY16) along with high dependence on institutional clients (85% of GPW during past 2 years) which remains a concern to the stability of earning profile. HGI premium cession to reinsurers remains the highest in the industry due to high proportion of large ticket sum insured. This affects its net premium earnings and profit levels compared to its gross premium written. However, the assigned grading factors in HGI’s long track record, tested underwriting norms, steady clientele comprising of reputed businesses, adequate underwriting and overall profitability and experienced management team. The grading also factors adequate reinsurance arrangements, including catastrophic provisions, which helped HGI maintain its claims paying ability, solvency position and profitability profile in the aftermath of the April 2015 earthquake. NMB Capital Limited has been assigned as the issue manager for the right issue. HGI had earned net profit of Rs. 8.05 crore in the third quarter of last fiscal year 2073/74 as per unaudited report. Its paid up capital remains at Rs. 38.52 crore. After distributing 166.67 percent percent right share it’s paid up capital will rise to Rs.1.02 arba. The proposed rights issue will increase its capital base in line with the revised minimum paid up capital requirement for general insurers as prescribed by the Insurance Board of Nepal. ICRA Nepal assigns IPO grading on a scale of IPO Grade 1 through IPO Grade 5, with Grade 1 indicating strong fundamentals and Grade 5 indicating poor fundamentals.