The IPO, which constitutes 14.22 percent of post-offer paid-up equity share capital, comprises of fresh issue of 1.72 crore equity shares and an offer for sale of 10.75 crore shares by promoter – President of India.The USD 1.7 billion initial public offering of state-owned General Insurance Corporation of India is set to open for subscription on October 11, with a price band of Rs 855-912 per share.
The largest-ever public issue by an insurance company will close on October 13, 2017.
Citigroup Global Markets India, Axis Capital, Deutsche Equities India, HSBC Securities and Capital Markets (India) and Kotak Mahindra Capital Company are the books running lead manager to the offer while the registrar to the offer is Karvy Computershare.
Equity shares are proposed to be listed on the National Stock Exchange of India and BSE.
Here are things you should know before investing in the issue:-
General Insurance Corporation of India is the largest reinsurance company in India in terms of gross premiums accepted in fiscal 2017 and accounted for approximately 60 percent of the premiums ceded by Indian insurers to reinsurers during fiscal 2017, according to CRISIL Research.
It is also an international reinsurer that underwrote business from 161 countries as of June 30, 2017.
Its business is organised in four segments based on the types of risk insured: fire (property), marine, miscellaneous (comprising a motor, engineering, agriculture, aviation/space, health, liability, credit and financial liability and other miscellaneous) and life insurance.
GIC has three group companies – India International Insurance Pte. Limited; Agriculture Insurance Company of India Limited; and GIC Bhutan Re Limited.
It has been consistently rated “AAA” with a stable outlook for claims-paying ability by CARE Ratings since 2004.
Public Issue Details
The IPO, which constitutes 14.22 percent of post-offer paid-up equity share capital, comprises of fresh issue of 1.72 crore equity shares and an offer for sale of 10.75 crore shares by promoter – President of India.
The offer also includes a reservation of up to Rs 11.68 crore worth of shares for subscription by eligible employees.
A discount of Rs 45 on the offer price is being offered to retail individual bidders and eligible employees.
The company is expected to raise Rs 10,661.85-11,372.64 crore (USD 1.6-1.7 billion) at price band of Rs 855-912 per share.
Bids can be made for minimum 16 equity shares and in multiples of 16 equity shares thereafter.
Objects of the Issue
GIC intends to utilise net proceeds of the fresh issue towards augmenting the capital base to support the growth of business and to maintain current solvency levels; and general corporate purposes.
The company will not receive any proceeds from the offer for sale.
> GIC is the leader in Indian reinsurance industry with a trusted brand and 44 years of experience.
> It is an international reinsurer that underwrote business from India and 161 countries as at June 30, 2017.
> It has diversified its reinsurance businesses and risks by covering many key business lines including reinsurance of fire (property), marine, motor, engineering, agriculture, aviation/space, health, liability, credit and financial liability, and life insurance.
> It has robust and comprehensive risk management framework.
> It has maintained a diversified Indian investment portfolio to generate investment returns to support liabilities for the reinsurance it underwrites and to create shareholder value.
> GIC has a management team with extensive experience and know-how in the Indian reinsurance industry.
> GIC has the strong financial track record and a strong balance sheet.
Its gross premiums and profit after tax on a restated consolidated basis have grown at a CAGR of 48.65 percent and 4.23 percent during FY15-FY17.
Geographic Mix of Business
GIC developed its overseas business through home office in Mumbai, branch offices in London, Dubai and Kuala Lumpur, a representative office in Moscow, a subsidiary in South Africa and a subsidiary in the United Kingdom.
As of June 30, 2017, it provided reinsurance in India and in 161 countries around the world.
Its gross premiums on a restated consolidated basis from international business (which is reinsurance written for risks outside of India) have grown at a CAGR of 24.84 percent (to Rs 103,004.52 million) during FY15-17. In FY17, its reinsurance for risks outside of India represented 30.53 percent of total gross premiums.
In the quarter ended June 2017, its gross premiums stood at Rs 30,049.70 million and reinsurance for risks represented 17.34 percent of total gross premiums.
In FY17, its top five countries in terms of gross premiums written for risks outside of India were the United Kingdom, Oman, UAE, Turkey and the United States.
The shareholding of promoter – President of India, acting through the Ministry of Finance – will be reduced to 85.78 percent post issue, from 100 percent (representing 86 crore equity shares).
GIC paid successive annual dividends in the past five fiscal years (including a proposed dividend in fiscal 2017) to the Government of India. Its dividends during last five fiscal years were an aggregate of Rs 33,200.50 million.
Risks and Concerns
Here are some risks and concerns highlighted by brokerage houses:-
> GIC’s success depends upon its ability to accurately assess the risks associated with the businesses that they reinsure, and if actual losses exceed its estimated loss reserves, its net income and capital position will be reduced.
> It operates in a highly-regulated industry and any changes in the regulations or enforcement thereof may adversely affect the manner in which business is carried on and the price of the equity shares.
> There are outstanding litigations against its Corporation, its directors and its group companies and any adverse outcome in any of these litigations may have an adverse impact on its business, results of operations and financial condition.
> Company’s risk management system, as well as the risk management tools available to them, may not be adequate or effective in identifying or mitigating risks to which they are exposed.
> Catastrophic events, including natural disasters, could materially increase the liabilities for claims and can result in losses and have an adverse effect on financial condition and its operations.
> Substantial increase in their agriculture reinsurance business in recent years exposes them to risks as they have not operated at this level of exposure in agriculture segment before. Particularly, they can face large losses in the event of bad monsoon or successive bad monsoon, drought or floodings.
> Top 5 cedents contributed 58.4 percent of the domestic reinsurance business in FY17.
> The reinsurance industry is highly competitive and the company competes with a number of worldwide reinsurance companies, many of which have greater financial resources and industry experience.
> Foreign currency fluctuations can reduce net income & capital levels.