Adamjee Insurance Company Limited (AICL) will buy MCB shares worth Rs 6.25 billion, but the company decided to delay in its new life insurance operations due to political uncertainty in the country. The life insurance operations are to start from January 1, 2008.
The company held an extra-ordinary general meeting to obtain shareholders' approval for investing Rs 6.25 billion in the purchase of MCB Bank shares. "As the company has huge unrealised capital gains on its balance sheet, the management has decided to realise approximately half of its total gains of its investment portfolio", senior analyst at JS Global Capital Limited Atif Malik said.
He added that the company through this exercise was also looking to benefit from capital gain tax exemption, which was available until December 31, 2007 for those companies whose financial year ends in December. "It is expected that in the fourth quarter of 2007, Adamjee could realise capital gains to the tune of Rs 3.1 billion (per share impact of Rs 30).
The company through the extra-ordinary general meeting received approval for buying MCB shares of worth Rs 6.25 billion. This includes those shares that are being mark-to-market plus those being newly bought. The new shares, for which approval was received, amount to Rs 5.0 million. As per the management, even though the approval has been taken, no definite decision has been made on the timing of these purchases and this might take place in one-two years.
Citing political tension as the main reason, Adamjee Insurance management revealed that their new life insurance business, which was due to start from January 1, 2008, had hit a delay. The management now expected this business to start in February or March, 2008, it said.
"This company, which is basically a joint venture between Adamjee (55 percent shareholding) and Hollard, a leading South African life insurance company (45 percent shareholding), will be managed by the South African partner for the first three years. "Moreover, instead of using the conventional business model, this new company plans to use new channels such as banks and internet to market its products," the company said.
"Adamjee's management, which plans to invest Rs 275 million (55 percent of total Rs 500 million) in this new company, does not expect this company to break-even for the next four years. Moreover, when asked about the possibility of a future listing, the management stated that once profitable, like other group companies, the new company could also be listed," said the management.
About Dubai operations, management said that unlike the past, the UAE operations were now performing well and that in 2007, it was expected that they would write down premium of Dhs30 million (or Rs 500 million). About claims, the management was of the view that it was too early for claims to occur and might start after two years. However, the company did not expect high claims this time around as their underwriting business was now well diversified, said the management.