Just day before government announced the three way merger of the Chennai based United India Assurance (UII) , the state owned general insurer has successfully raised Rs 900 crore of debts on Tuesday to boost its solvency ratio.
The debt issue in the form of non secured debentures( NCDs) with an interest rate of 8.25 per cent and 10 year tenure has been over subscribed by two times.
This is the first time that the company has gone for a debt issue and is the second public sector general insurer after Kolkata based National Insurance Company (NIC) to raise debt capital.
“We have raised Rs.900 cr subordinate debt in the form of non secured (NCDs) at 8.25 per cent with a tenure of 10 year and with a call option after 5 years. The response was highly satisfying as it has been oversubscribed by almost 200 per cent of the issue size. We will only retain Rs 900 crore out of the Rs 1800 cr we have received. It augments our solvency by about 23 points,''said MN Sarma, CMD, UII.
The subscriber to the UII’s debt instruments include Life Insurance Corporation(LIC), New India Assurance(NIA) , Oriental Insurance Company (OIC) and Axis Bank.
“ We don't have any other debt in our book, so our annual interest outgo will only be 8.25 per cent of Rs 900 cr. This entire money will be reinvested in the market as we don't have any cashflow problems and we raised this debt for the specific purpose of augmenting the solvency position. Our net out-go by way of interest will be the cost of this debt minus the yield we will realise by reinvesting this Rs900 cr which works to about 0.50% p.a. Thus the net cost of this debt is expected to be Rs. 4.5 cr. per annum,’’ explained Sarma.
The company which is having less than required1.5 per cent solvency ratio, is expecting its solvency ratio to be at 1.8 per centt by the end of the current fiscal.
Finance Minister Arun Jaitley in his Budget -2018 presented in Lok Sabha on Thursday has announced a mega merger plan among three public sector general insurers – Chennai based United India Insurance, Kolkata based National Insurance Company, Delhi based Oriental Insurance Company and list the proposed new entity after the merger.
Subhas Chander Garg, Economic Affairs Secretary, Ministry of Finance, immediately after the Budgetary announcement said the government will be completing merger of three public sector general insurers in FY 2018-19 and then only will list the new entity during the year.
After the completion of the merger of the three companies, the country will see the largest general insurer with over Rs 40,000 crore of premium and having a market share of over 30 per cent.