Nepal Reinsurance Company is accepting applications for 16 Million units IPO; look at what the company review reflects

Company Profile

Nepal Re-Insurance Company Limited (Nepal Re) is the successor of the insurance pool that was set up in 2003 with the aim to cover the losses arising from situations like riot, sabotage, or terrorism and malicious damage (RSTMD), during the insurgency in Nepal. Nepal Re was incorporated on November 7, 2014, under the Companies Act, 2006 as per the decision of the Council of Ministers to convert the pool to that of a reinsurance company. The company came into operation from December 2014. This is the first and only Nepalese reinsurance company.

The paid-up capital and the net worth of Nepal Re as of mid-Jan 2019 stood at NPR 8,400 Million and ~NPR 11,686 Million respectively. At present, the entire equity shares of Nepal Re are held by promoter shareholders. The shareholding is divided among the Government of Nepal (GoN) (~44%), 17 non-life insurance companies (~38%) and eight life insurance companies (~8%) and other public institutions (~10%).

During FY 2018, Nepal Re reported a profit after tax of ~NPR 1,017 Million (NPR 560 Million in FY 2017) over an asset base of NPR 13,026 Million as of mid-July 2018 (NPR 10,021 Million as of mid-July 2017). During H1 FY 2019, Nepal Re reported a profit after tax of ~NPR 558 Million.

Objectives of the issue

About the issue

Nepal Re-Insurance Company Limited is issuing 16,000,000 units worth Rs.1.60 Arba as Initial Public Offering for the general public from Chaitra 4, 2076. The early closing date of this issue is on Chaitra 7 and if the issue is not fully subscribed till Chaitra 7, then it can be extended up to Chaitra 18, 2076.

Out of the offered 16,000,000 units; 73,500 units have been set-aside for the employees of the company and 5% of total offered share to general public i.e. 80,000 units have been set-aside for the mutual funds. The remaining 15,126,500 units are for the general public.

Applications can be place for minimum 10 units and maximum 10,000 units.

RBB Merchant Banking Limited has been appointed as the issue manager for the IPO issuance.

ICRA Nepal Limited has assigned a [ICRANP] IPO Grade 2 to the Rs.1.60 Arba Initial Public Offer of Nepal Re-Insurance Company Limited. Instruments with this grading are considered to have above-average fundamentals. The approved units is 16% of the total paid up capital of the company.

Capital Structure

Shareholding Structure

Board of Directors

Management Team

Credit Rating

ICRA Nepal Limited has assigned a [ICRANP] IPO Grade 2 to the Rs.1.60 Arba Initial Public Offer of Nepal Re-Insurance Company Limited. Instruments with this grading are considered to have above-average fundamentals. Nepal Re has proposed an IPO of 16,000,000 numbers of equity shares, of face value NPR 100 each, to be issued to the general public including the staffs of Nepal Re.

Strengths

• Strong ownership profile of Nepal Re with 100% institutional holding (including ~44% stake by the Government of Nepal-GoN) coupled with regulatory and policy-level support accorded to it by the GoN, given its status as the only domestic reinsurer.
• Strong solvency profile, adequate reinsurance (retrocession) arrangements and good underwriting performance of the company so far.
• Regulatory provision requiring all domestic insurers to cede 20% of their business to Nepal Re remains a strong positive, which is expected to support the business growth and profitability of the insurer going forward.
• Nepal Re is also expected to benefit from the policy level changes and the mechanism proposed to be introduced by the GoN for supporting reinsurance sector growth in Nepal.

Weaknesses

• Limited track record of Nepal Re as a full-fledged reinsurer.
• High business concentration (~62% of gross premium written in FY 2018 from its top ten customers); albeit partly contributed by the provision of mandatory cession, which signifies reinsuring a fixed percentage of the total risks with the reinsurer.
• Being a regulation-supported business, Nepal Re also remains exposed to the change in regulatory norms, especially regarding the provision of mandatory cession by local insurers.
• With over 90% of its business coming from the domestic market, the company also remains exposed to the geographical concentration risk; albeit partly mitigated by adequate reinsurance coverage, including catastrophic coverage taken by Nepal Re.
• Competition Nepal Re faces from other established foreign reinsurers offering their services in Nepal.

Financials

Source: ICRA Ratings Nepal, Company Prospectus