ZIMNAT Lionâ€™s appetite for mergers could stand out as the most viable option to recapitalise the insurance company amid ongoing negotiations to strengthen the balance sheet, businessdigest has gathered.
A cautionary statement issued last month by the Zimnat board advised shareholders to keep their stocks close to their chest pending finalisation of an anticipated deal that could have â€œmaterial impactâ€ to the companyâ€™s fortunes.
Despite keeping a tight lid on the nature of the ongoing negotiations, analysts have predicted that this might be a capital injection option given the prevailing economic conditions and the under-capitalisation of financial institutions, including insurance companies.
â€œShareholders are hereby advised that Zimnat Lion Insurance Company Ltd has entered negotiations which may have material impact on the company and therefore shareholders are therefore advised to exercise caution in trading of their shares,â€ said the company board.
For the past five years insurance companies had been making most of their revenue from stock market investment instead of their core business of underwriting.
Analysts contend that the revenue generated from the currently lukewarm stock market might not be sufficient to recapitalise the listed concern.
Zimnat Lion has a market capitalisation of at least US$2,2 million.
But an urgent need to focus on its core business would demand more capital, which the local bourse might not generate.
Analysts have predicted that severe foreign currency shortages on the domestic market would rule out possibilities of a rights issue.
Another option that Zimnat has would be a buyout of minority shareholders by the cash rich parent company, TA Holdings, which has an estimated 85% stake.
Again pursuing on this path could result in regulatory constraints from Zimbabwe Stock Exchange.
Market analysts said TA Holdings was in violation of stock exchange regulations restricting a majority shareholder from exceeding 70% of issued shares. On the other hand, this deal could be a board decision that could correct this anomaly.
Efforts to get comment from company secretary Anthony Makonese on the progress of the negotiations were fruitless.
The anticipated deal follows 2005 negotiations between insurance giant AIG and TA Holdings, which led to the subsequent merger between Zimnat Lion and AIG Zimbabwe.
Before this merger, Zimnat Insurance Company had merged with Lion of Zimbabwe. The resultant entity, Zimnat Lion Insurance Company was listed on the ZSE in 2001 resulting in a relatively stronger balance sheet and improved underwriting capacity.
BY BERNARD MPOFU