Business News
Insurance recapitalisation, greatest deservice to industry- Mutual Benefit boss
Insurance recapitalisation is counterproductive. #MUTUALBENEFIT #NAICOM
Chairman, Mutual Benefits Assurance, Akin Ogunbiyi, has criticised the on-going recapitalisation exercise in the insurance industry describing it as the greatest de-service to the firms and industry.
What it implies: Ogunbiyi said the exercise has created confidence problem in the industry as it could kill the industry if it is not reversed or given a longer-term period as deadline.
He said, “In fact, something drastic needs to be done to reverse this new capital exercise. It has created a lot of confidence problems.
“Even the people doing insurance don’t know what will happen. If an industry is working with N5bn and they are not able to use it for profitability, and you say increase it to N18bn, what are we insuring?
[READ MORE: Mutual Benefits to raise N2 billion after breaking dividend drought(Opens in a new browser tab)]
“Government should hear it from me; it is killing the industry. If nothing is done quickly, either to reverse this or to give a three-year or long-term period for the recapitalisation, the industry is gone. Today, the insured doesn’t even know what to do. I can tell you that only five insurance companies have passed that recapitalisation stage out of 49 companies. Is that the kind of industry that we want.”
On Government`s participation, Ogunbiyi argued that while the government is pushing for recapitalisation, it not patronising the insurance companies like it’s partnering with the commercial banks.
“What is the capacity that five of them will have to absolve the risks that we have currently, where the informal sector is not part of the risk you are taking? It is only the corporate world. And you say people should move from N2billion to N8billion, and from N3billion to N10billion capital base. How much is the capital base of banks? N25billion? The government will pass the budget; everything goes through the commercial banks but we don’t have government patronage in insurance.
“At the current capital base, the industry has the capacity to absolve any risk the government would give. At N3billion, the Nigerian insurance industry is the most capitalised within the African continent. For countries with a higher contribution to Gross Domestic Product in Africa, what are the capital requirements they are operating with? Why is it that the only solution the government has for insurance companies is to increase capital?”
[READ MORE: Mutual Benefits to raise N2 billion after breaking dividend drought(Opens in a new browser tab)]
Nigeria’s economy not favourable: With the Nigerian economy growing slowly, Ogunbiyi said the market isn’t favourable for firms operating in Nigeria. Despite a population of about 200 million, insurance penetration is still below 0.5 per cent in Nigeria,” he said.
To bultress his point, Ogunbiyi said insurance companies on the Nigerian Stock Exchange(NSE) have become penny stock in the capital market as their values are as low as 50kobo.
“They will succeed in killing this industry. When you say companies should increase capital, is it in an economy that is not growing? Where are the productive sectors of the economy? Where is trade, where is the government? Everybody is barely surviving; nobody is thinking of insurance and you wake up to say
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go to N18bn. Insurance companies have become penny stock on the stock market. How many insurance companies have paid dividend in the last 10 years? Where are the investors that will bring in the money?”
Foreigners buying firms with peanut: The Mutual Benefit Chair alleged that insurance companies are being acquired with peanuts by foreigners and the owners don’t last more than two years before they exit the market.
Ogunbiyi said his frustration isn’t because of Mutual Benefits, because his company is strong enough to survive any level of capital base demanded by the government, he, however, is more concerned about the market that could lose about 10 companies while only one could recapitalise.
“How do you take people’s sweat because of this issue of recapitalisation and give to the foreigners? I don’t know whether the policymakers have compromised. Foreigners are buying the insurance companies for peanut.
[READ MORE: Mutual Benefits to raise N2 billion after breaking dividend drought(Opens in a new browser tab)]
“They are not doing what they call direct foreign investment. They are bringing flight by night. Check all the history of those who have bought into insurance in Nigeria; they operate it for two years, they create the hype, manipulate the prices, move it up, two years they are off. This service is a total de-service, not only to insurance but even to the national economy.
“If you have one insurance company that is able to recapitalise, will that take the place of 10 that will not survive. If they make the capital N200bn, Mutual Benefits will survive. But it is not about Mutual Benefits, it is about the industry that is dying. This policy will kill the industry if the government does not quickly rise up. This is a retrogressive move. Capital base is not the only way to make insurance create value and to make it more relevant to the national economy,” he told Punch.
Corporate Press Releases
SEPLAT shows its resilience in FY 2020 despite challenging year
SEPLAT continues to honour commitment to shareholders despite seeing lowest oil prices in its 10-year history.
Seplat Petroleum Development Company Plc (“Seplat” or the “Company”), a leading Nigerian independent energy company listed on both the Nigerian Stock Exchange and the London Stock Exchange on Monday, March 1 announced its audited results for the financial year ended 31 December 2020.
Operational highlights
Working-interest production within guidance at 51,183 boepd, despite demand fall and OPEC+ quotas; Liquids production of 33,714 bopd, gas production of 101 MMscfd; Eland OML40/Ubima assets produced 8,855 bopd, 26.3% of Group liquid volumes ; Low unit cost of production at $8.90/boe, with cost-cutting initiatives ongoing, particularly at OML40/Ubima; Drilled/completed nine wells and brought eight onstream in 2020; and ANOH project now budgeted under original $700 million FID estimate, but COVID-19 related delays to H1 2022.
Financial highlights
Final dividend of $0.05 per share recommended ($0.10/share for full year); Earnings before interest, taxes, depreciation and amortization
(EBITDA) of $265.8 million, operating profit of $121 million (before non-cash impairments and unrealised fair value losses); Strong cash position of $259 million after $100 million RCF repayment, $58 million dividends paid in the year, and $150 million capex; net debt at $440 million with most maturities after 2021; and IAS 36 COVID-19 impact assessment and IFRS 9 non-cash impairment provision of $144.3 million, majority booked in Q2 2020. Worthy to note that SEPLATs volume production is about 40percent ahead of 2019 but the benefit was offfset by lower crude prices in 2020.
In compliance with prudent accounting standards on the treatment of COVID-19 pandemic impact on Oil and Gas businesses, Seplat had to revalue downwards its oil and gas assets by $114.4million to reflect the lower crude oil prices of 2020 and this reversed the operating profit of US$82.7million to a loss for the year of US$85.3million. When crude oil prices improve, these same oil and gas assets will be revalued upwards.
Corporate updates
Creation of New Energy unit to manage gas processing and future low carbon to zero carbon initiatives; AGPC financing signed in February 2021, $260 million raised, with commitments for $450 million; Advanced stage to extend maturities for existing Eland RBL, raise additional funding via offtaker financing for Elcrest capex; $5million funding of share purchase programme, by Trustee, for Seplat LTIP, starting immediately; and Board directive to eliminate Related-Party Transactions by end of 2021.
Outlook for 2021
Full-year production guidance of 48-55 kboepd, subject to market conditions; and Full-year capex expected to be around $150 million with a focus on gas projects and an exploration well to meet reserves replacement targets.
Roger Brown, Chief Executive Officer, said: “2020 was a challenging year for the Company but Seplat has once again shown its resilience and ability to overcome challenges and deliver production in line with guidance, operating with minimal incidences of COVID-19 cases.
“From the $330 million of cash generated from operations, we have increased our capital investment, invested in ANOH and voluntarily paid down $100 million of debt, further deleveraging the balance sheet. Despite seeing the lowest oil prices in our 10-year history, we have continued to honour our commitment to shareholders of a regular income stream on their investment, by maintaining a total dividend of $0.10 per share for the year.”
“Gas is the lower-carbon feedstock for affordable electricity for Nigeria’s young and rapidly-growing population. Seplat is leading Nigeria’s transition away from spending scarce foreign currency on imported, expensive, high-emission diesel-generated electricity and we believe this will provide the necessary baseload for a functioning electricity grid that will allow renewable energy to take its place, as we see in the developed world, which in large parts is still fuelled by coal. The energy transition in Nigeria must balance both the environmental and the social agenda.
“Our flagship ANOH project, with the Nigerian Gas Company, is now fully funded and we have made excellent progress in difficult times, with major gas processing units expected to arrive in Nigeria in Q3 2021, installation to commence before the end of the year, mechanical completion and pre-commissioning in Q1 2022 and first gas flowing to customers before the end of H1 2022, at a lower expected cost of up to $650 million.
“We remain committed to providing shared value for all of our stakeholders. During the year, with our Government partners, we provided medical beds and other palliatives to our communities and have started construction on a 200-bed infectious diseases hospital. Seplat continues to focus on employment opportunities for communities, education, healthcare and knowledge transfer and local capacity development.”
Summary of performance
Revenue in FY 2020 was $530.5million (N190.9bn) as against $697.8million (N214.2bn) in 2019, down 24 percent. Gross profit was $124.6million (N44.8billion) in 2020 from $395.7million (N121.5billion) in 2019, down 68.5 percent. Cash flow from operations was $329.4million (N118.6bn) in 2020, down 3.6 percent from $341.6million (N104.7bn) in 2019.
Outlook for 2021
For 2021 the SEPLAT expects to produce an average of 48,000 – 55,000 boepd, taking into account the impact of OPEC+ quotas. We continue to hedge against oil price volatility and expect a higher proportion of revenues to come from long-term gas contracts at stable prices.
“We have significant cash resources and will continue to manage our finances prudently in 2021, expecting to invest $150 million of capital expenditure across the full year. We remain confident that our ongoing cost-cutting initiatives and prudent management of cash will enable further reductions in debt, whilst supporting dividend payments and investment for growth.
“Following its successful funding, the completion of the ANOH project remains a major priority. Although we expect some COVID-19 related delays to push completion into early 2022, following a cost optimisation programme we now expect the project to cost no more than $650 million, substantially below the $700 million budget previously stated at Final Investment Decision (FID).”
Coronavirus
FG fully prepared to receive 3.92 million vaccines on Tuesday – NPHCDA
The has restated Nigeria’s preparedness to receive its very first batch of Covid-19 vaccines on Tuesday, March 2, 2021.
