Prabhu and Mahalaxmi Life Insurance Merger Highlights; Swap Ratio Fixed at 1:1
Fri, Jul 15, 2022 1:29 AM on Merger/Acquistion, Latest,
Merger Highlights
Mergers between Mahalaxmi Life Insurance (MLICL) and Prabhu Life Insurance (PLI) have been finalized with a 1:1 swap ratio.
After the merger, it has been agreed to conduct business under the name of 'Prabhu Mahalaxmi Life Insurance.
Most of the insurance companies are under pressure to increase their capital as the Insurance Committee (Beema Samiti) has directed the life insurance companies to increase the minimum paid-up capital to Rs 5 Arba and non-life insurance companies to Rs 2.5 Arba within Chaitra end 2079.
The committee had also announced to provide various facilities and exemptions to the insurance companies going for merger by the end of Ashad. Accordingly, insurance companies are keen on mergers.
Earlier, three life insurance companies, Union Life Insurance Co Ltd (ULI), Gurans Life Insurance Co Ltd (GLICL), and Prime Life Insurance Co Ltd (PLIC), signed a merger agreement aimed at strengthening the company's capital base. That was the first merger in the country's life insurance sector.
Capital Structure to Raise the Capital
The newest life insurance company, Mahalakshmi Life Insurance, plans to enhance its existing paid-up capital, which is currently Rs 1.40 Arba, by securing a 50% investment from its promoter shareholders. However, even after this arrangement, Mahalaxmi's paid-up capital will still only be about Rs 2.10 Arba. In the same vein, Prabhu Life has a capital that is only about Rs 2 Arba.
Therefore, the only alternative left for the two companies to meet the required minimum capital of Rs. 5 Arba is to merge.
The capital allocation structure, however, indicates that even after the merger, the combined capital of the two companies appears to be only Rs 4.10 Arba, and Rs. 90 crores shortfall won't be enough to reach the required capital limit.
On their SGM, Mahalaxmi Insurance had decided to float IPO worth Rs 90 crore to the general public.
MLICL is not a listed company, whereas PLI is one of NEPSE's listed insurance companies. Also, only the trade of Prabhu Life Insurance's shares will be halted for this reason.
