“The process is on war-footing as we are planning to come up with a joint balance sheet for the current fiscal year (ending on July 15),” Bhoj Raj Sharma, CEO of Neco Insurance, told Republica. [break]
Successful merger of the two insurers will be first such case in the history of the country´s insurance sector.
As of now, the two companies have obtained initial approval from the Insurance Board, the insurance sector regulator, to initiate the merger process.
“We are also conducting due diligence audits, results of which will give us complete picture on financial condition of both the firms,” Sharma said.
Once the audits are complete, the two companies will strike deals on equity distribution ratio, board and management structure, and name of the new company, Sharma further said.
The two companies have initiated merger process at a time when the deadline issued by the insurance sector regulator to comply with the new minimum capital requirement is approaching.
In September 2011, the Insurance Board directed life and non-life insurance companies to raise paid-up capital to Rs 500 million and Rs 250 million, respectively, up 100 percent and 150 percent, by mid-July 2013 to enhance their shock absorbing capacity.
As of mid-April, Neco Insurance held paid-up capital of Rs 121.27 million, while Premier Insurance maintained a capital base of Rs 102 million.
If the two companies are consolidated, the new company will have a paid-up capital of Rs 223.27 million, which means it will have to raise additional Rs 26.73 million from shareholders to meet the new capital requirement.
However, a new merger directive issued by the regulator on May 15 provides extra one-year period to merged entities to meet the minimum regulatory capital requirement.
The recently introduced merger directive also provides merged entities a grace period of up to one year to right-size investment portfolios, while individuals, groups and institutional investors holding stake of over 15 percent of paid-up capital in merged unit will be given a period of up to two years to make necessary amendments.
Neco Insurance generated a net profit of Rs 17.27 million in the third quarter of the current fiscal year ended mid-April, while Premier Insurance posted net profit of Rs 20.92 million in the same period.
Share price of Neco Insurance stood at Rs 116 on Tuesday, which Premier´s stock price closed for the day at Rs 140.
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