PICIC approves acquisition by Crescent Star Insurance

Arrangement has been agreed at the swap ratio of one to four

KARACHI: The board of directors of PICIC Insurance approved on Wednesday the scheme of arrangement for the company’s acquisition by Crescent Star Insurance.

In a securities filing, PICIC Insurance Company said the deal will take place at the swap ratio of one to four. This means that any person or institution holding four shares in PICIC Insurance will end up owning one share in Crescent Star Insurance post-acquisition.



PICIC Insurance and Crescent Star Insurance are among the smaller players in the country’s non-life insurance industry. Each of the two companies has total assets of less than Rs1 billion, which makes them a part of the nine-member group of the smallest non-life insurance companies.

In the case of an acquisition, sponsors of both companies keep their stakes in the post-acquisition entity. But the board of the post-acquisition entity will likely be dominated by the sponsors of Crescent Star Insurance, as its equity (Rs645.2 million) is higher than the current equity of PICIC Insurance (Rs68.9 million).

Speaking to The Express Tribune, Insight Securities Head of Research Zeeshan Afzal said the share price of Crescent Star Insurance is expected to hover at the current level in the post-acquisition scenario. The share price of Crescent Star Insurance increased 7.8% to close at Rs10.47 at the end of the trading session on Wednesday.

Market capitalisation, which is the total rupee value of a company, of Crescent Star Insurance is currently Rs865.7 million. It will go up significantly as soon as it acquires the assets and liabilities of PICIC Insurance.



However, the share price of post-acquisition Crescent Star Insurance will not see a major jump instantly, Afzal said. That’s because the acquisition of PICIC Insurance at the swap ratio of one to four will also increase the total number of outstanding shares.

This will keep the increase in the share price of Crescent Star Insurance in check: the share price of a company equals market capitalisation divided by its number of outstanding shares. Therefore, a simultaneous increase in the numerator as well as the denominator will result in little change in the share price of post-acquisition Crescent Star Insurance.

PICIC Insurance has been facing solvency issues, as its accumulated losses put a big dent into its paid-up share capital of Rs350 million. Its equity amounted to just Rs68.9 million at the end of March 2016 because of the accumulated losses of Rs281.1 million.

Crescent Star Insurance is in profit unlike PICIC Insurance. The former posted a net profit of Rs4.4 million in the first three months of 2016 while the latter made a net loss of Rs841,000 over the same period.

Both parties had called off the deal on June 10 for undisclosed reasons. However, they revisited the collapsed deal two weeks later and decided to proceed with the transaction.

Meanwhile, the apex regulator of the insurance industry recently said Crescent Star Insurance had deceptively raised capital by way of round-tripping of funds while circumventing corporate regulations.

In his written order regarding the show-cause notice served on the CEO and directors of Crescent Star Insurance, Securities and Exchange Commission of Pakistan (SECP) Commissioner Fida Hussain Samoo had said there was “established misstatement” of facts in the case and that the company’s financial accounts had “material gaps” that cast doubt on their fairness.

Published in The Express Tribune, June 30^th, 2016.

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