Insurers must take Idra clearance for IPO

Insurance Development and Regulatory Authority (Idra) has recently urged the stock market regulator not to approve any initial public offering (IPOs) for insurers without a no-objection certificate (NOC) from their primary regulator.

The development came after the recent IPO approval to Sena Kalyan Insurance Company by the Bangladesh Securities and Exchange Commission (BSEC) without a NOC from Idra.

However, Idra said the company received a NOC from the insurance regulator later to go ahead with its listing plan.

The different demands by different regulators

As per Idra Act 2010, sponsors must hold 60% shares in their insurance companies.

The companies will collect the rest of the amount from the general public through stock market listing within three years of their registrations, said Idra Act. 

If insurers fail to collect the portion from the general public within the stipulated time, Idra can charge a penalty from the companies.

It is also mandatory for insurers to take NOC from their first regulator regarding IPO applications.

Earlier in late 2019, Finance Minister AHM Mustafa Kamal asked for a faster stock market listing of all the non-listed insurers, both from life and non-life insurance sectors.

The companies had been in a dilemma as two of their regulators, in conjunction, asked for tough compliance.

On the one hand, the Idra Act dictates that the companies must ensure 60% shareholding by their sponsors, on the other hand, BSEC's Public Issue Rules need them to raise the paid-up capital of at least Tk30 crore from the public if they want to issue share at face value.

To comply with the two regulations together, insurers were under pressure to raise their paid-up capital up to Tk75 crore which was a much bigger target for most companies struggling to comply with Idra's demand for at least Tk30 crore in paid-up capital for life insurers, and Tk40 crore for non-life insurers.

The solution

However, as per the Finance Ministry instruction, the BSEC On 30 November 2020 halved the minimum IPO size to Tk15 crore for the insurance companies and the initial big target of Tk75 crore in post-IPO paid-up capital came down to Tk37.5 crore.

The figure is more than enough for the life insurers to comply with their capital needs stipulated by the Idra, but still is asking the non-life insurers to raise more.

IDRA officials said the new generation of insurers is increasing their pre-IPO paid-up capital to comply with both the regulators' demands.

Meanwhile, a few insurers have applied to the commission taking exemption for listing.

Currently, there are 78 insurance companies – 32 life and 46 non-life – in the insurance sector of Bangladesh. Of them, 51 companies are listed on the stock exchanges. 

The 60% problem for the already listed insurers

The IDRA, in January this year had asked all the insurers to comply with its law ensuring 60% shareholding by sponsors alone while above 80% of the listed insurers are only complying with the BSEC's demand for 2% shareholding by each director individually, and 30% shareholding by sponsors and directors collectively.

The insurance regulator's order may be obeyed through the insurance company sponsors' buying of public shares from the bourses, which might spark an abnormal demand for the insurance stocks.

Insurance stocks got a spike in price based on such a scenario and later corrected seeing no concrete update in this regard.

Also, the listed insurance companies may issue fresh shares for their sponsors to increase their collective stake to 60%, of course, subject to BSEC's approval.

A BSEC official told The Business Standard recently, issuing fresh shares only for sponsors might hurt external investors and such moves might not be approved by the BSEC.