ICRA assigns Grade 4 rating to the proposed 80% right shares of IME General Insurance
Fri, May 4, 2018 1:20 AM on Credit Rating, Dividend, Bonus & Rights, Latest, Stock Market,
ICRA Nepal has assigned “[ICRANP] IPO Grade 4”, indicating below average fundamentals to the proposed rights issue (equity shares) amounting to NPR 432 million of IME General Insurance Limited (IGI). 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.
The proposed issue is being made to augment the capital base to meet new paid-up capital requirement set by the regulator.
Premium growth of IGI has remained healthy in the past 2.5 years which has enabled the company to improve its market share. The grading also factors in the existence of low insurance penetration in Nepal – providing enough space for future growth.
The grading remains constrained by small market share (despite recent improvement), relatively smaller branch network and limited track record of the company since the business resumption in late FY2015. The grading also remains constrained by the low possibility of equity holders receiving dividend payments in FY2018 due to the weak financial profile (accumulated loss of NPR 81 million as of mid-Jan 2018).
Despite reporting profits during past 3 financial years, IGI is yet to recover the losses accumulated in the past, over the years of dismal performance. Relatively steady combined ratio on an increased premium base augurs well for incremental underwriting performance of the company.
Supported by capital infusion and progressive internal accruals, IGI’s investment portfolio has grown to NPR 852 million in mid-Jan 2018, 80% of which is in the form of fixed deposits with banks and financial institutions (BFIs). Given the recent uptick in the interest rates across banking industry, incremental yield on investment has improved (from 4% in FY2017 to 7% in H1FY2018). This is likely to support the profitability profile of IGI going forward.
IGI has 80:20 promoter-public shareholding ratios with major shareholding from promoters related to IME group (45%), Laxmi Group (7%), Lomus pharmaceutical group (2%) in addition to institutional promoter holding by Nepal Bangladesh (NB) Bank 10%.
