Uganda’s NIC sweetens cash call, explores bonus issue

National Insurance Corporation's (NIC) builidng in Kampala, Uganda and a graphic of its assets and investments. The insurer is exploring a bonus issue, a move that could sweeten its ongoing rights issue. Photo/FILE.   NATION MEDIA GROUP

By David Mugwe

In Summary

• National Insurance Corporation (NIC) is exploring a bonus issue, a move that could sweeten its ongoing rights issue
• Issuing bonus shares, which is just like giving a non-cash dividend gives investors an added incentive to participate in the cash call
• Last year, Nairobi Securities Exchange listed CfC Stanbic announced an interim dividend while NIC Bank promised bonus shares during their rights issues to attract investors and attain a full subscription

Kampala bourse listed National Insurance Corporation (NIC) is exploring a bonus issue, a move that could sweeten its ongoing rights issue.

The insurer, which is Uganda’s largest privately held, last Friday disclosed that it is looking at the option of issuing bonus shares after the conclusion of the cash call which is scheduled to come to a close on Friday this week.

“Options for increasing the capital of the company include among others, a bonus Issue in 2014 immediately following the rights issue. The necessary approvals for a bonus issue will be sought from shareholders and regulators if this option is selected,” said Remi Olowude NIC chairman in a statement issued last Friday.

READ: Tanzania Oxygen, Uganda's NIC register thin trades on cash calls

Issuing bonus shares, which is just like giving a non-cash dividend gives investors an added incentive to participate in the rights issue.

Last year, Nairobi Securities Exchange listed CfC Stanbic and NIC Bank promised dividends and bonus shares to attract investors and attain a full subscription.

Rights issues normally have a diluting effect because they raise the supply of shares and the promise of a bonus or dividend could encourage investors to hold on to the stock and increase demand.

CfC Stanbic announced an interim dividend while NIC Bank promised bonus shares.

READ: Tanzania Oxygen seeks $2.7m in rights issue

The Uganda Securities Exchange listed insurer is seeking to raise Ush8.4 billion ($3.3 million) through the sale of 323.1 million shares at Ush26 ($0.01) in the ratio of 4 shares for every 5 shares held.

The money will be used to help in its expansion, automation of its processes, re-branding and provision of working capital.

Part of the funds raised will also be used to separate its life business from its non-life business in compliance with regulatory requirements.

The shares are being offered at a 25.71 per cent discount to its last traded price of Ush35 ($0.01) at the USE, a price that has been sustained throughout the rights issue.

READ: Dar domestic market cap doubles as Nairobi edges towards $23bn

Its main shareholder, Industrial and General Insurance Company Limited (IGI) of Nigeria which owns 60 per cent of NIC through Corporate Holdings Limited has said that it intends to take up the rights which it is entitled to.