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Business News

Analysis: AIICO Insurance, who is buying?

A visit to AIICO Insurance Plc’s website homepage reveals a vividly depicted ‘Buy Now” phrase. Underneath these words are captivating images highlighting a slew of products and services offered by the company

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Nigeria's Insurance Sector

A visit to AIICO Insurance Plc’s website homepage reveals a vividly depicted ‘Buy Now” phrase. Underneath these words are captivating images highlighting a slew of products and services offered by the company.

It’s hard not to get convinced to buy any of the products if you focus on the images and their underlying messages. AIICO, by the way, also just announced plans to sell something else.

Last week, the company reported that it was seeking shareholders’ approval to raise N3.5 billion at its next EGM scheduled for March 5th. Shareholders had, in May 2016, given the directors’ approval to raise additional capital up to N25 billion. The fundraising is also in compliance with NAICOM’s capital requirements for insurance companies.

AIICO increases authorised share capital to N18 billion 

For AIICO, this means meeting N18 billion in shareholders’ funds. AIICO’s shareholders fund as of December 2019 was about N26.9 billion only. So why then is the company selling shares again to its shareholders? The devil is in the details.

 

A closer look at its N26.9 billion shareholder fund composition shows that N5.2 billion and another N3.5 billion are classified under deposit for shares and revaluation reserves respectively. Back these out and the Shareholder Fund is down to just around N18.2 billion.

Technically, it needs to raise capital if it wants a buffer, as one would expect, above the minimum capital of N18 billion. This perhaps explains the need for a capital raise.

But why raise capital when they have a deposit for shares of N5.2 billion included in their balance sheet? According to AIICO, “the deposit for shares represents amounts received by the company from its recent private placement, in which Leap Frog Investment Limited and AIICO Bahamas Limited invested a combined amount of N5.38 b into the company on 12 December 2019. Amount received is kept in dedicated account by the issuing house, Stanbic capital pending the receipt of the final approval by SEC.”

AIICO did not issue any press release or notify shareholders on the Nigerian Stock Exchange that it had consummated this investment.

[READ MORE: Deal: AIICO receives N5.3 billion investment from Leap Frog)

The purchase consideration is made up of 4.4 billion ordinary shares of N0.50 each at N1.20 per share by way of a special/private placement. So why bother raising more equity? These are questions that only the management of the 56-year-old insurance company can explain in the no distant future, but we can speculate.

To be fair, AIICO has not had a public offer in recent memory and only conducted rights issues just 3 times, with the last being in 2006. AIICO owes the IFC N2.42 billion which it obtained in 2015.

The loan also has embedded an option to convert, in the event that there is a change in control or sale of a substantial part of the company’s assets or business. The option incidentally expired in December 2019. Thus, shareholders could get significantly diluted if it does not pay off IFC. The deal with Leap Frog may preclude the company from using the proceeds to pay off debts.

Raising capital from shareholders should therefore not be an arduous task, except of course you are one to ask yourself the tenable question, what am I getting in return? AIICO has posted 20% plus return on average equity, despite its many challenges.

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AIICO shares have returned 13.8% YTD and appear undervalued. Shareholders will be quick to remember what happens to share prices whenever a capital raise is being considered. May the bulls have the day.

The "Blurb Team" is the official conveyer of the opinions of the Nairametrics Research & Analysis Board on matters of financial reports, macroeconomic data, and economic policies.

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Hospitality & Travel

FG discusses nation’s carrier, Nigeria Air with US Ambassador

The FG has held a discussion with the US government over the establishment of a national carrier for Nigeria.

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Just in: FG bars Air France, KLM and other foreign airlines, FG to spend N13 billion for automation projects in 4 airports, domestic flights, international passengers, Coronavirus: FG enforces immediate screening of travellers at airports with new directive

The federal government has held a discussion with the government of the United States of America over the establishment of a national carrier for Nigeria.

This was disclosed by the Minister of Aviation, Hadi Sirika via his Twitter handle after he held a discussion with the Ambassador at the United States Embassy in Abuja.

He tweeted, “We took the opportunity to discuss investments and opportunities in the aviation sector, including national carrier. The partnership looks promising. USA is the only country we have open skies with. Thanks, Ambassador Mary and the team.”

What you should know

In July 2018, the Federal Government unveiled the branding and livery for the new airline, Nigeria Air, and stated that the carrier would be inaugurated at the end of that year.

Sirika unveiled the carrier at a press conference during the Farnborough Air Show in London that year.

“I am very pleased to tell you that we are finally on track to launching a new national flag carrier for our country, Nigeria Air. We are all fully committed to fulfilling the campaign promise made by our President, Muhammadu Buhari, in 2015. We are aiming to launch Nigeria Air by the end of this year,” the minister had said.

He also stated that the government had obtained the Certificate of Compliance from the Nigerian Infrastructure Concession Regulatory Commission and would go into investor search.

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Economy & Politics

SERAP asks Buhari to probe N39.5 billion duplicated, mysterious projects

SERAP has asked President Muhammadu Buhari to probe the reported N39.5 billion duplicated and mysterious projects inserted in the 2021 budget.

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See what FSDH is saying about the 2020 budget and FG’s revenue drive , 2020 budget

Socio-Economic Rights and Accountability Project (SERAP) has asked President Muhammadu Buhari to probe the reported N39.5 billion duplicated and mysterious projects inserted in the 2021 budget.

This is to know if public funds have been diverted in the guise of implementing the projects and prosecute those allegedly involved including those from the executive and the National Assembly.

The request from SERAP follows a report from BudgiT last week, where they alleged that there are 316 duplicated capital projects worth N139.5 billion in the 2021 budget.

This disclosure is contained in a public statement issued by SERAP on Sunday, May 9, 2021, and can be seen on its website.

SERAP said that the investigation of the alleged duplicated and mysterious projects, which are part of the 2021 appropriation bill of N13.588 trillion, should establish whether public funds have been mismanaged, diverted or stolen in the guise of implementing these projects.

What SERAP is saying in its letter

In the letter dated 8th May 2021 and signed by SERAP, Deputy Director, Kolawole Oluwadare said: “The misallocation of public funds for duplicated and mysterious projects has seriously undermined the ability of the indicted MDAs, and the government to ensure respect for Nigerians’ human rights through developing and implementing well-thought-out policies, plans, and budgets.”

The letter from SERAP partly reads, “BudgIT had in a report last week stated that there are 316 duplicated capital projects worth N39.5 billion in the 2021 budget. The duplicated and mysterious projects are contained in the 2021 appropriation bill of N13.588 trillion signed into law in December 2020.”

These damning revelations suggest a grave violation of the public trust, and Nigerians’ rights to education, health, water, sanitation, and clean and satisfactory environment because the indicted MDAs have misallocated public funds at the expense of the people’s access to basic public services, and enjoyment of rights.”

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SERAP urges you to ask the heads of the MDAs involved to explain why they allegedly failed to ensure strict compliance with constitutional and international standards of transparency and accountability in the preparation, processes and decisions on their budgets, and to return any misallocated public funds to the public treasury.”

Investigating and prosecuting any allegations of mismanagement, diversion and stealing of public funds budgeted for the 316 duplicated and mysterious projects would allow your government to use the budget to effectively promote Nigerians’ access to essential public goods and services.

Publishing the ‘implementation status’ of the duplicated and mysterious projects would allow Nigerians to hold their government to account in the spending of public funds. This is particularly true for marginalized and excluded groups, such as people living in poverty, women, children, and persons with disabilities, as the budget has a disproportionate impact on their welfare.”

We would be grateful if the recommended measures are taken within 14 days of the receipt and/or publication of this letter. If we have not heard from you by then, the Incorporated Trustees of SERAP shall take all appropriate legal actions to compel your government to comply with our request in the public interest.” 

SERAP also urges you to direct Mrs Zainab Ahmed, Minister of Finance Budget and National Planning to publish full details of current ‘implementation status’ of the duplicated and mysterious projects, and any spending on the projects to date, including the 115 projects inserted in the budget of the Ministry of Health; the 23 projects inserted in the budget of the Ministry of Education, and 10 projects inserted in the budget of the Ministry of Water Resources.

The following ministries are reportedly involved in the duplicated and mysterious projects: Ministry of Health with 115 projects; Ministry of Information and Culture with 40 projects; Ministry of Agriculture and Rural Development with 25 projects; Ministry of Education with 23 projects; Ministry of Transportation with 17 projects; and Ministry of Science and Technology with 17 projects.”

Others are the Ministry of Environment with 13 projects; Ministry of Power with 11 projects; Ministry of Labour and Employment with 11 projects, and Ministry of Water Resources with 10 projects.”

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The letter was copied to Mr Malami; Professor Bolaji Owasanoye, Chairman Independent Corrupt Practices and Other Related Offences Commission (ICPC); Mr Abdulrasheed Bawa, Chairman, Economic and Financial Crimes Commission (EFCC); and Mrs Ahmed, the Finance Minister.

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