Independent Financial Analyst (PHOTO/Courtesy).
KAMPALA —It has been confirmed that on 22nd October 2021, Allianz SE merged with Jubilee Insurance Company of Uganda Limited, to become a majority shareholder in Jubilee Holdings Limited (JHL)—East Africa’s largest Insurance group.
This trade that was confirmed on Allianz’s official website, led to Allianz acquiring a 66% stake in Jubilee Insurance company of Uganda representing 29,700,000 ordinary shares.
This means that the deal cost approximately $93 million: If the shares acquired are those on the Uganda Securities Exchanges (USE) or if they (ordinary shares) were sold or transferred at their share value. A noticeable aspect about mergers is that they can be facilitated by cash, stock, assumption of debts or a combination of all.
Currently, JHL’s share price on the Uganda Securities Exchange (USE) is 11,183 Uganda shillings per share. Meaning, JHL retained a 34% ownership stake in Jubilee Insurance company of Uganda representing 15,300,000 ordinary shares or approximately $48 million in equity value.
The communication from Allianz doesn’t specify which shares were involved in the trade; whether those on the Ugandan or Kenyan bourse, regardless, the cost estimations of the transaction remain the same because the share prices of JHL on NSE and USE are indistinguishable.
This is the second approval to be completed as Allianz first acquired a majority stake in Jubilee General Insurance Limited in Kenya, in May 2021. Further, transactions in Tanzania, Burundi and Mauritius are to follow shortly.
This merger is going to bring forth a new entity; Allianz Jubilee General Insurance Company— a portmanteau of both the insurance companies’ trade names.
To ascertain if this merger is going to be productive, it’s best to take a closer look at both entities to discover what they will bring to the table—starting with Allianz.
The Allianz Group is one of the world’s leading insurers and asset managers with over 100 corporate customers in more than 70 countries. Its stocks trade on all German exchanges in Frankfurt, Berlin, Hamburg-Hannover, Dusseldorf, Stuttgart and Munich; and is valued at over €83.41 billion ($96.7 billion).
Implicating easy access to capital that can be transferred in a breeze to fund the enterprise’s operations worldwide.
The multinational finances services company, is one of the most highly valued in Europe. As of June 2021, it had a revenue of €25.87 billion ($30 billion) and cash on hand of €24.15 billion ($28 billion). This implies that it is well equipped with cash to handle uncertainties and to oversee normal business cycles with physical cash.
Allianz’s high Year on Year revenues signifies it’s a cash cow—it has posted steady revenues over it’s lifespan and has a large chunk of the market share earning it a spot on the Dow Jones Sustainability Index. To be included on this index, a company has to be within the top 10% of the largest 2,500 global stocks excluding US based companies.
Conversely, JHL, the parent company of Jubilee Insurance company Uganda, was founded in 1937 and went public on 1st January 1987 on the NSE. It provides asset management solutions for savings and retirement funds.
As of unaudited reports of June 2021, JHL owns total assets worth $1.3 billion, with total incomes from all the company’s sources as of June 2021 at over $159 million, and a net profit of $40.17 million.
Therefore, the merging of Allianz and JHL is a real doozy; bound to be successful with little standing in its way of triumph.
It is in no way a merger of equals; but a union in the best interest of both companies that is setting a stage for higher earnings, and trailblazing corporate practices in the insurance industry.
This merger can best be classified as a market extension merger because it is going to introduce Allianz to the East African markets and is going to change the landscape of the whole insurance industry in the Great lakes region.
In brief, Jubilee Holding Limited is marrying up!
It is obvious as the noonday sun; that the oil sector in Uganda is the catalyst for this merger, because insurance in Uganda is viewed as a foreign concept; and the only recent meaningful change in Uganda’s economic surroundings to warrant foreign attention of a blue-chip insurance company like Allianz, is oil.
With the emergence of the oil sector in Uganda, a superabundance of risks to be covered are going to present themselves. These are risks that JHL couldn’t fathom to cover on their own because of a deficiency in capital, experience and insurance policies.
In Uganda, peak production of 230,000 barrels per day is targeted, together with a heated oil pipeline stretching over 1,443 kilometres across two countries, and a moving workforce in the form of camps to be set up in the areas the pipeline is going to be constructed.
This scenario, creates risks of damage to the already fragile ecosystem because the pipeline is going to cross rivers and farmlands. This will result in carbon emissions, pollution, water contamination, and serious health problems long after the oil expedition is concluded. Therefore, insurance covers for these cases have to be drafted.
Additionally, there are risks of sexual violence with the increased setting up of camps in areas the pipeline is going to be built.
Throughout the projected lifetime of the pipeline, significant oil spills, leaks, fires and accidents should be expected. These will be triggered by among many factors—earthquakes.
The Albertine Grabben is located in a high risk seismic zone and has been severely hit by earthquakes because the Western arm of the Rift Valley cuts through.
For instance, as far back as 1966, a strong earthquake shook the region killing 150 people and injuring 1,300; causing damage estimated at $1 million at the time. In 2017, a 4.7 magnitude tremor hit Hoima district near the oil wells.
Wherefore, the exploration and production of oil in Uganda poses a myriad of ultraexpensive risks that have to be insured against; and on their own, Insurance companies in East Africa—JHL, don’t have the muscle to cover.
Allianz is more equipped to properly underwrite insurance policies to cover: fire, floods, soil erosion, earthquakes, landslides, explosions, collisions, ruptures as well as exposure to property damage, business interruption and injury; to a magnitude that JHL cannot.
Apprehensible mergers in East Africa, are a rare occurrence; because most are politically motivated or encumbered in structure.
However, this union between Allianz and JHL—Jubilee Allianz General Insurance Company, is going to earn them (especially JHL) revenue they otherwise couldn’t have realised since they would have ‘sat out’ the venture for the most part due to a deficiency in capacity to handle a sector of that proportion singlehandedly.
All things considered, this merger is going to lustre the rather lifeless insurance industry in Uganda with much needed robustness.
Mark Kidamba
Independent Financial, Investment Analyst
Twitter: @m_kidamba
