KATHMANDU, Aug 25: Nepal Reinsurance Company Ltd (Nepal Re) is preparing to issue initial public offering (IPO), floating 16 million units of shares worth a total of Rs 1.6 billion, for the public. 

The first domestic reinsurance company owned by the government along with other insurance companies of the country is planning to float its primary shares to the public by mid-December. The company will sell its primary share at par value of Rs 100. 

Reinsurance refers to insurance purchased by insurers to limit the total loss an insurer would suffer in case of a disaster.

Signing the Memorandum of Understanding with RBB Merchant Banking Ltd on Friday to appoint it to work as the issue manager, the reinsurance company has formally started the process to go to the public to generate capital. 

With the current paid-up capital of Rs 8.4 billion, the government holds nearly 43.55 percent stake while the remaining ownership is with life insurance and non-life insurance companies of the country. With the IPO raising the company's paid-up capital to Rs 10 billion, its public ownership will reach nearly 16 percent including that of the employees. 

"Our target is to issue the primary shares to the public by Mangshir [mid-December]," Ramesh Kumar Bhandari, the RBB Merchant Bank's CEO, told Republica. "The company has been performing well as this is the only domestic reinsurer in the country that also has business abroad," he added. 

The successor of Insurance Pool that was set up in 2003 was later incorporated as the reinsurance company which began its operation from mid-July 2015. 

In the budget speech for the current Fiscal Year 2018/19, the government had announced that it would make it mandatory for the insurance companies to get at least 20 percent of reinsurance service from domestic reinsurance companies. The move is expected to boost the revenue of the reinsurance company. 

Chirayu Bhandari, the CEO of Nepal Re, told Republica that the public offering will help to boost the capital of the reinsurance company that has been expanding its reinsurance business to foreign countries. The establishment of reinsurance company is expected to reduce the outflow of foreign currency worth billions of rupees from the country in reinsurance premiums. 

According to the unaudited financial results of the reinsurance company, it collected a total of Rs 4 billion in reinsurance premiums while making investment of Rs 9.4 billion until the last Fiscal Year 2017/18. The company earned a net profit of Rs 1.4 billion as of the fourth quarter of the last fiscal year.

 
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