Jitters among shareholders of the National Insurance Corporation (NIC) and poor investor appetite at the Uganda Securities Exchange (USE) have prompted a lower-than-expected uptake for the insurer's rights issue, leading to under-subscription of 16.2 per cent. The transaction raised Ush7 billion ( $2.8 million ) against a target of Ush8.4 billion ( $3.3 million ) set by NIC, according to data from Crested Stocks and Securities Ltd , the joint transaction adviser and lead sponsoring broker for the rights issue. Due to this funding gap, NIC's expansion plans may be constrained, with new monies only capable of meeting capital requirements set by the industry regulator, observers claim. New capital requirements for insurance companies are scheduled for implementation in July; paid up capital for life insurance providers and general insurance providers has been increased to Ush3 billion ( $1.2 million ) and Ush4 billion ( $1.6 million ) respectively. READ: Uganda's NIC sweetens cash call, explores bonus issue NIC's share price averaged Ush30 ( $0.01 ) last year, down from its initial public offering price of Ush45 ( $0.02 ). Together with the falling market share, the drop has discouraged several fund managers from investing in the stock. Senior NIC executives say inadequate proceeds from the rights issue will affect expansion. "The cost of our expansion plans might be revised to fit into limited funds raised from the rights issue. We are yet to decide on further actions for mobilising extra funds to bridge the shortfall. Nevertheless, we anticipate premium incomes to grow by 25 per cent this year," said Wale Oluwaniyi, NIC's Chief Finance Officer. The company's gross premiums rose from Ush3.8 billion ( $1.5 million ) in December 2012 to Ush4.4 billion ( $1.8 million ) by close of June 2013 . Profit before tax grew from Ush2.2 billion ( $887,464 ) to Ush2.7 billion ( $1.1 million ) during the same period. Though NIC's majority shareholder Industrial and General Insurance (IGI) of Nigeria took up its full allocation, plus additional shares that helped it retain 60 per cent ownership, two prominent shareholders who acquired a 20 per cent stake during the IPO declined to take up their shares, citing unimpressive results posted by the firm since it listed in 2010. These were Crane Bank Ltd and Sudhir Ruparelia , who were allocated 66.5 million shares under the rights issue; IGI has 193 million shares. Following their refusal to buy their rights shares at Ush5 ( $0.002 ), the two shareholders placed an offer of Ush30 ( $0.01 ) at the USE for the entire allocation but failed to find a buyer, market sources claim. They consequently gave up their shares, enabling retail investors to acquire 12 million extra shares. The remaining shares however, did not attract a buyer, leaving the company stuck with them. In contrast, retail investors achieved more than 100 per cent subscription on shares allocated, with most of them opting to preserve the value of their original stocks as they wait to cash in on a growth turnaround strategy being initiated by the company, stockbrokers say. After completion of the rights issue, IGI's shares in NIC rose to 357,676,615 while Crane Bank and Ruparelia's shareholding fell to 7 per cent and 6.9 per cent respectively. "Reluctance to take up rights shares by two big local investors clearly affected the outcome of this transaction. However, the more worrying issue is tied to potential decline in share price during the aftermath of the transaction as witnessed in previous rights issues," said Robert Baldwin , CEO of Crested Stocks and Securities Ltd.
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