Recapitalisation: NIA moves to settle legal tango

Recapitalisation: NIA moves to settle legal tango
Sunday Ojeme
In one of his contributions to assist in the growth of the insurance industry, the Managing Director of Intercontinental Bank Plc, Mr. Erastus Akingbola, said one of the greatest achievements of the recapitalisation programme was that power had changed hands from the previously perceived owners of the companies (that is, managers), to the real owners-the shareholders-especially with the expected listing of the recapitalised insurance companies on the stock exchange.
He said, as the shareholders of the recapitalised banks had become increasingly aware, shareholder activism held the key to better corporate governance and management.
Akingbola spoke on the need to protect the various investors who had considered it worthwhile to invest in an industry that had suddenly become forward looking as a result of a boost in the shareholders’ funds.
However, happenings in the last two weeks over the court injunction secured by NICON Insurance Plc and A & G Insurance Plc have been unsettling some investors in the serctor, who came into the system through the opportunities the consolidation programme offered.
The development is already weighing on the Nigerian Insurers Association, which seeking quick resolution to the matter.
The applicants had gone to the Federal High Court in Abuja to seek an order stopping the ongoing recapitalisation in the sector as a result of perceived illegalities. Justice Anwuri Chikere, who also ordered the Natioanl Insurance Commission to stop other processes relating to the exercise, granted them the order.
Our correspondent’s findings revealed that a few weeks ago, a chief executive officer in one of the insurance companies that recently sealed a merger agreement with a Nigerian firm had made preparations to travel to his country on vacation before the court gave the order.
As soon as the news broke, he cancelled his trip and headed for the NIA’s office in Lagos to confirm the development and the likely implication of the court order on the industry.
His fears, according to a source who confided in our correspondent, bordered on what to tell investors in the merger deal on getting back to his country. The news, which had already gotten to his country, was said to have prompted several telephone calls from stakeholders who wanted to know how and when the matter would be resolved.
This scenario has been the same even with local investors who are demanding urgent resolution to the empasse before the sector would lose the investment steam, which it had been enjoying at the stock market.
In the last two weeks since the order was granted, listed insurance companies that were part of the leading firms at the stock exchange are beginning to experience a dip in transaction.
Apart from the money raised locally, the recapitalisation campaign also provided opportunities for foreign investors to put funds into the Nigerian economy, which had been marked for years as fraudulent because of scam mails that emanate from the country.
As part of the push, Capital Alliance Private Equity Limited emerged as core investor in Cornerstone Insurance Plc after injecting N3.4bn ($26 million) into the underwriting firm.
Capital Alliance has links with the renowned African Capital Alliance.
Private equity fund manager, EMP Africa, invested $46.5m (about N6bn) in Continental Reinsurance Plc as well as additional $4m from three other foreign investors, RP capital Group, Genesis Emerging Market Fund and South African Investec Asset Management while the International Finance Corporation, an arm of the World Bank, invested $14m in Leadway Assurance Company Limited. United State’s biggest insurer, American International Group, also took interest in the system but failed to make any financial commitment.
Chief Timothy Adesiyan of Nigerian Shareholders Solidarity Association among others, urged the new investors to bring to bear their expertise, international reach wealth of experience and financial power by way of enhancing shareholder's value.
The Co-ordinator, Independent Shareholders Association of Nigeria, Mr. Sunny Nwosu, expressed confidence and attested to the ethical pedigree of the new investors. He, however, urged them not to do anything that would jeopardise the interest of shareholders.
“We want you to add value as you have done in all companies you have substantial investment stake and make appreciable returns on investments for those who have invested."
The recapitalisation programme also attracted local investors, especially within the middle and lower classes who invested their monies in the shares of the companies considered as penny stocks. They got the encouragement from experienced shareholders who never anticipated that the current impasse arising from the trapped funds, verification exercise and the current court order would confront the operators.
Believing that investors in the sector will reap their dividends quickly, the Managing Director of Star Insurance Brokers Limited, Mr. E.C .M Akamobi, said those who believed that the stocks in the industry were penny stocks would have themselves to blame by the time full consummation of the consolidation exercise was achieved.
He said prior to the consolidation era, insurance stocks were not noticed and that with the experience of the banking industry, the insurance stocks were bound to fly to high heights that would put the pessimists into a position of regrets.
Speaking in the same vein, the Chairman, Progressive Shareholders Association of Nigeria, Mr. Boniface Okezie, said that the wave of share appreciation had shifted to the insurance stocks. He said it was no longer in doubt that insurance stocks were rewarding investors.
According to him, "I can tell you that many millionaires are made through insurance stocks more than in banking stocks. He said the most important aspect of one of the activity charts was that apart from the banking industry, the only sector that made the ten most active stocks came from the insurance sector.”
This was the belief of some observers who thought that soon insurance companies would begin to make arrangements to own banks just the way it is in developed economy.
According to an Estate Developer, Chief Olatunde Moruf, the situation calls to question the integrity of those in the industry from the regulatory agency, the National Insurance Commission, to the operators.
Moruf, who said he suddenly took interest in buying insurance stocks during the recapitalisation programme, noted that the experience he had during the banking consolidation compelled him to invest about N800,000 in different company stocks.
Expressing his fears, he said, “When they failed to release the recapitalisation list I was worried not knowing that a bigger problem was rearing its head. Even the money that is locked up in the bank is yet another problem. The question now is when will the trapped money be released?”
He blamed those who handled the recapitalisation programme for leaving loopholes for the aggrieved operators to latch on, saying that the banking consolidation was done in way that the grievances of a few bank operators did not affect the industry as a whole.
Observers are equally wondering about other long effect of the inconclusive programme as the situation has continued to erode investors’ confidence, especially as nobody has spoken about specific interest rate on the trapped funds contrary to the expectation of the investors.
In the current circumstance, a company that raised about N3bn fresh funds will be in jeopardy as it would have placed about N2.8bn in the escrow account and another N300m as statutory deposit.
This is more appalling as the Securities and Exchange Commission has mandated the operators to pay dividends.
Another disturbing development is the resolve by multinationals to continue to place their risks offshore, with Ghana likely to be the beneficiary while some insurance brokers are withholding the premium collected on behalf of the insurers pending the release of the recapitalised list to the public.
An operator who spoke on the condition of anonymity said apart from the fact that it was becoming very difficult to collect premium from clients because of the empasse, the insurance brokers were exploiting the situation in placing their businesses in the market, while the investors are putting a lot of pressure on the insurance companies on their investments.
According to him, "I feel very sad for the insurance industry because when the bankers went through their consolidation exercise, they did not face this kind of problem, and honestly, they are exploiting the gains of the recapitalisation exercise in the sector to the full. "The most interesting part of the bankers' exercise is that many of the banks on their own are again raising their capital base far in excess of the minimum amount prescribed by Central Bank of Nigeria guideline. They are making waver in the financial service sector with their impressive financial performance as well good dividend pay out. We are hoping that this problem will be resolved quickly so that we can face the challenges of the new business environment."