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.
Business News
Oil & Gas: DPR announces 2020 marginal field licensing round
While we see the need for these asset sales to generate much-needed revenue for the Federal Government, we are concerned that a bidding process under the current environment will be fraught with difficulties.
The Department of Petroleum Resources (DPR) on Monday announced the commencement of the 2020 marginal field bid round. This bid round is coming 18 years after the last bid round in 2002 and is open to indigenous oil & gas companies and investors interested in participating in the exploration and production business in Nigeria. Marginal fields are known oil or gas discoveries on an IOC-owned block and where there has been no activity in at least the last 10 years. With the agreement of the IOC, the DPR carves-out a piece of land surrounding the discovery and this becomes a Marginal field. On this occasion, there are 57 marginal fields available for bidding, including 11 fields revoked by the DPR.
The exercise would be conducted electronically and would include expression of interest/registration, pre-qualification, technical and commercial bid submission, and bid evaluation. The process is expected to be completed in six months. The first bid round that was formally organised by the FGN began in 2001 and was concluded in 2003. At the end of the bid round, 24 licenses were awarded to 31 indigenous companies. Another bid round was proposed in 2013 with a lot of preparation and guidelines released. Unfortunately, it never held.
Flagging off this bid round under the current economic situation points to the government’s urgent need for funds. According to the DPR guidelines, interested bidders will be required to pay a total of US$115,000 and N5m in non-refundable statutory fees comprising an application fee of N2 million per field, Bid Processing Fee of N3million per field, Data Prying fee of $15,000 per field, Data Leasing fee of $25,000 per field, Competent Persons Report of $50,000 and $25,000 for Fields Specific Report.
While we see the need for these asset sales to generate much-needed revenue for the Federal Government, we are concerned that a bidding process under the current environment will be fraught with difficulties. Firstly, the current fluctuations in oil prices may mean that intending investors may base their valuations on pricing models that can become unrealistic in the near term and then are unable to develop such fields acquired. Many local companies have been hard hit by the effects of covid -19 and the ensuing significant decline in oil prices, hence they may not have sufficient cash flows nor be able to raise needed funds from both local and international banks.
In addition, we see regulatory difficulties hampering interest in the fields. For example, the lack of passage of the long awaited Petroleum Industry Bill (PIB) remains a significant deter. Furthermore, the recently passed Deep Offshore and Inland Basis Production Sharing Contracts (Amendment) Act (DOA) has made investments in Nigeria oil & gas assets less attractive. These negative regulatory sentiments has led to many IOCs decreasing investments in the Nigerian oil & gas industry. Overall, we think this may result in many of the fields ending up in the hands of individuals with cash but with no industry expertise. Again, with the current economic crunch, many of the fields may be sold significantly below their fair value.
CSL Stockbrokers Limited, Lagos (CSLS) is a wholly-owned subsidiary of FCMB Group Plc and is regulated by the Securities
and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.
Business News
May Output Cut: OPEC+ records 86% compliance as Nigeria beats expectation
Some of the non-OPEC member countries recorded less than impressive compliance rates. Kazakhstan, Brunei, and South Sudan recorded 47%, 22%, and 13% compliance respectively.
As OPEC+ pushes for an extension of the current output cut of 9.7 million barrels beyond June, a new report suggests that the alliance may have achieved a fairly impressive level of compliance in May, the first month of the biggest global effort to curtail oil production.
Energy Intelligence estimates that the alliance achieved an 86% compliance rate (in May) with the production cut of 9.7 million barrels per day that was agreed for both May and June. This contradicts the 74% compliance rate that was earlier reported by a Reuters survey.
The massive output cut is intended to counter the dramatic slump in global oil prices which was triggered by the coronavirus pandemic and supply glut. The output cut has since helped to move up prices well above the April lows.
Meanwhile, some West African OPEC members fell short of their pledged output cuts, with Angola and Congo recording compliance rates of 54% and 20%, respectively. Gabon’s May output actually exceeded its volumes in October 2018, which was chosen as the baseline month against which the cuts are measured.
(READ MORE: Oil prices hit 2-months high as Bonny light rises to $33.9/barrel over vaccine test optimism)
However, the compliance by Nigeria for the month of May was better than the expected 83% after its output fell by around 260,000 barrels per day between April and May. This is, however, at variance with 52% compliance that was disclosed by Nigeria’s Minister of State for Petroleum, Timipre Sylva.
Some of the non-OPEC member countries recorded less than impressive compliance rates. Kazakhstan, Brunei, and South Sudan recorded 47%, 22%, and 13% compliance respectively.
The OPEC+ alliance’s overall compliance rate was lifted by the performances from four of its top five producers, which were close to 100%. Among these heavyweights, only Iraq lagged well behind with a compliance level of less than 50%.
Energy Intelligence estimates that Opec plus achieved an 86% May compliance rate with the production cuts of 9.7 million bpd. https://t.co/nDs8dYzqkS #OOTT #opec @energyintel
— Amena Bakr (@Amena__Bakr) June 3, 2020
Russia failed to live up to its obligations under previous OPEC+ deal. But after removing condensate, which is not counted as part of its current quota, its oil output is 8.6 million barrels per day in the month of May; indicating an impressive 96% compliance rate.
Compliance is expected to improve in the month of June.
Business News
COVID-19 palliative: Sanwo-Olu concludes Homegrown School Feeding Programme
The homegrown school feeding programme, was targeted at providing food packages for 37,589 households of pupils in Public Primary Schools years 1-3
The modified homegrown school feeding programme, launched on May 21, as part of palliatives offered by the Lagos state government to cushion the economic impact of the COVID-19 pandemic, has been concluded.
The programme, which basically modified the already existing school feeding programme, was targeted at providing food packages for 37,589 households of pupils in Public Primary Schools years 1-3.
According to an official tweet from the Lagos state government, the programme was concluded on Tuesday, June 2, 2020.
The Modified Homegrown School Feeding Programme, which was flagged off in Lagos on the 21st of May, 2020 and targeted at 37,589 households of pupils in Public Primary Schools years 1-3, has been concluded@jidesanwoolu @lagossubeb#LASG #ForAGreaterLagos #CovidLASG pic.twitter.com/lWrQscf6NW
— The Lagos State Govt (@followlasg) June 2, 2020
The Executive Chairman of Lagos State Universal Basic Education Board, LASUBEB, Mr. Wahab Alawiye-King, noted that the distribution of the packages to the beneficiary households took off on May 21, and was spread across 202 centres across the 20 Local Government Education Authorities in the State.
(READ MORE:COVID-19: Lagos receives N200 Million, 5 ambulances from BUA Foundation)
Items contained in the Take-home rations:
Each beneficiary of the packages received a take-home ration made up of “5kg Bag of Rice; 5kg Bag of Beans; 500 ml Vegetable Oil; 750ml Palm Oil; 500mg Salt; 15 pieces of eggs and 140gm Tomato Paste,” which is expected to assist the parents and guardians feed the children as they remain at home during the prolonged holiday.
He explained that each beneficiary received a Take-Home Ration made up of 5kg Bag of Rice; 5kg Bag of Beans; 500 ml Vegetable Oil; 750ml Palm Oil; 500mg Salt; 15 pieces of eggs and 140gm Tomato Paste@jidesanwoolu @lagossubeb#LASG #ForAGreaterLagos #CovidLASG
— The Lagos State Govt (@followlasg) June 2, 2020
What you should know:
The Federal government also introduced a modified homegrown school feeding programme on May 15 to be coordinated by the Honourable Minister of Humanitarian Affairs, Disaster Management and Social Development, Sadiya Umar Farouq.
Farouq noted during one of the Presidential Task Force media briefings that the distribution of Take-Home Rations (THR) to the households of the children on the programme as a feasible method, after exploring several options of reaching children in vulnerable households.
Each Take-Home Ration is said to be worth N4,200, although the Minister has not released full details of the programme.
According to the World Food programme, there are 17 countries currently distributing Take-Home rations to school children. In Liberia, Take Home Rations have been distributed since 2019.
