AIICO Insurance Plc 2020 Bonus Issue: Fear Of An Unfair Outcome

BY NICK V. DODO (FCA)

On 29 December 2020, AIICO Insurance Plc (AIICO) listed the rights issue of 4,357,770,954 ordinary shares on the Daily Official List o the Nigerian Exchange (“the Exchange”).  The rights issue is the first of a two-Phase strategy AIICO adopted to comply with the NAICOM circular of May 2019 on the compulsory recapitalization of insurance companies.  The second phase as disclosed by AIICO board company chairman, is the issuance of bonus shares to increase the paid-up capital.

To jump start the second phase, the board, on the strength of audited financial account for the year ended 31 December 2019 declared to its members a bonus of One (1) new share for every five (5) held as bonus.  The qualification date was 23 September 2020.  On 19 November 2020, AIICO further declared an additional bonus issue of one (1) new share for every five (5) held with 30^th November 202 as the qualification date

Incidentally within the period the first bonus declaration to date AIICO has, using the Exchange portal, made series of announcements that if care is not taken are misleading and could skewed to the comfort of its major shareholders bonus issues to the disadvantage of its minority shareholders.

As a prelude necessary to an understanding of this write up, AIICO has as at 24 August 2020 a total issued and fully paid 11,330,204,480 ordinary shares of 50 kobo each.  Of these, 4,516,206,099 ordinary shares constituting 39.86% are held by minority shareholders.  Four (4) major shareholders hold in total 6,813,998,382 ordinary shares representing 60.14% of the issued and fully paid ordinary shares

To execute the phases 2 strategy AIICO on the strength of the year ended 31 December 2019 audited accounts declared on 11 June 2020 a bonus of one (1) new ordinary share for every five (5) held while, on 29 November 2020 the board further declared an addition bonus of one (1) new share for every five (5) held as at 30 November 2020.  The main concern is the process or method AIICO took to execute two declared bonuses.  The steps taken leaves much to be desired and is capable of shortchanging its minority shareholders.

The following are some announcements AIICO sent out vide Exchange portal within the year 2020.

1. On 11 June and 16 June 2020, AIICO declared vide the Exchange portal a bonus issue of one (1) new share for every five (5) ordinary shares. The qualification date for the bonus was fixed as 23 September 2020.

2. On 23 September 2020, the Exchange as stated in its Weekly Report, marked down (as ex-script) the share price of AIICO to 86 kobo from 89 kobo per share. This means the issued and fully paid shares in AIICO has increase by the bonus proposed.

3. On 19 November 2020, the board of directors further announced an additional or second bonus out of share premium of One (1) new share for every Five (5) new shares held. Qualification Date was 30 November 2020.

4. On 01 December 2020, the Nigerian Stock Exchange accordingly marked down (ex-script) the share price from N1.02 to 92 kobo per share.

What then should be a clear resolution affirming the two bonus declarations, the 50^th AGM passed as Special resolutions that radically altered the AGM Proposed resolution.  This is where the likelihood to shortchange the minority shareholders came in to the effect that: –

1. The AGM changed the qualification date of the first bonus from 23 September 2020 to 28 December 2020 not withstanding the fact that the share price of the shares of AIICO were marked down on 23 September 2020
2. The AGM brought in and to be included in the second bonus declared, the right shares of 4,357,770 Ordinary shares of 50 kobo each at 80 kobo per share to benefit in the second bonus declared on 19 November 2020. One should note that the Rights shares as at the date of the declaration have not been allotted, approved by the Securities & Exchange Commission and made public through newspaper publication.

At this stage one will brings forth some critical questions on the AIICO AGM resolution of its 50^th AGM as relayed in (4) above

1. Can the AGM of a company change the qualification date for either a bonus or a dividend after the NSE has marked the share price of the said stock?

2. How is the Rights Shares a factor now? The Notice of the AGM made no mention of the Right Shares as beneficiaries of the bonus.  But it was discussed and the rights shares made to benefit in the second bonus declared.  Further question include can an AGM discuss a matter not listed as an agenda for the meeting?  To the later question the simple response is, only what is listed as the business of the day in the Notice of an AGM can be discussed at an AGM.

Trying to understand the quantity of shares AIICO issued as bonus to shareholders is fuzzy and oblique.  One need to go through the Nigerian Stock Exchange Weekly Report for 25 September 2020 and 1 December 2020 to properly understand the concern expressed herein

• For the first declared bonus with 23 September 2020 as the qualification date, a total of 2,266,040,896 ordinary shares of 50 kobo each were added as bonus to shareholders of AIICO in the register of members as at the close of business on 23 September 2020. The bonus when added to the pre-bonus 11,330,204,480 Issued and fully paid ordinary shares brings the total issued and fully paid 13,596,245,376 ordinary shares of 50 kobo each

• For the second declared additional bonus with 30 November 2020 as its qualification date, a total of 2,719,249,075 bonus ordinary shares to members in the register of shareholders as the close of business of 30 November 2020. This brings the issued and fully paid share capital to 16,315,494,451 ordinary shares as at 01 December 2020.  All the company needed was to regularize the board approval of the said quantities of shares at the 50^th Annual General Meeting of 08 December 2020

Possible case of market abuse most likely when AIICO brought the rights share to benefit in the second bonus declaration.  The rights circular was clear that the rights shares issued shall only qualify for any dividend (or any other distribution) declared for the financial year ending 31 December 2020 NOT YEAR 2019.  Why should AIICO on 19 November 2020 announcement on the Exchange portal include the rights shares as beneficiaries of the second declared additional bonus.  This is not appropriate and not in the interest of minority shareholders.  One even doubts if the allotment proposal for the right had been approved by the Securities and Exchange Commission.  The rights shares have no right to any distribution to shareholders from the audited financial statement for year ended 31 December 2019

The execution of the recent AIICO bonus declaration leaves much to be desired.  As it is, many shareholders cannot come up independently with the number of ordinary shares a shareholder will receive as bonus from the first and second bonus declaration.  First the inclusion of the rights shares as part of the bonus completely further created a blurred picture of the outcome and secondly the change in closure date ordered by the AGM in both the first and the second bonus also creates an unfair trade situation.  The consequences include taking lawful shares from some shareholders that sold ex-script, their earned bonus shares t and confer same on shareholders who bought ex-script, bonus shares they neither deserved.   As it is no one truly knows the direction the Registrars will take to implement the two bonuses declared.  One only hopes the regulators – The Nigerian Stock Exchange and the Securities and Exchange Commission will step in to save the minority from possible shortchange.

Mr.  DODO is an Independent Financial & Investment Analyst and can be contacted via: nickdodo@live.com