Save the date! Key Insurance Company’s rights issue is coming up! And you still have until December 10 to be eligible.  Let’s discuss what this means for shareholders and the companies involved. 

At it’s annual general meeting October 8, Key Insurance Company announced they wanted to raise money through a rights issue. And the shareholders approved. Since then, we’ve been anxiously awaiting a date. We still don’t know the date that the offer will open, but what we do know is that you have until December 10 to become a shareholder of Key Insurance, in order to be eligible for the rights issue.

What is a Rights Issue?

Before we go any further, let’s take it back to basics.  A rights issue is a way by which a company listed on the stock exchange can raise funds. It does this by giving existing shareholders the right to buy new shares at a discounted price.

The rights issue for Key Insurance is renounceable – which means that shareholders can choose to buy more shares in the offer or choose to not take up those shares, in other words, they renounce the right to buy – hence, renounceable rights issue.  Any shares that are renounced become available for other shareholders to buy.

Company history

Now let’s give you a little history about Key Insurance.  The company was established in 1982 as an insurance company that provides protection for almost all classes of general insurance. In January 2020, GraceKennedy acquired 15% of Key Insurance, and then two months later in March, snapped up another 65% – so GK now owns 80-percent of Key Insurance. 

Since GK’s acquisition of the company, 330 new shareholders have bought into Key Insurance so they now have more than 500 shareholders as of October 2020. Market capitalisation grew fivefold from $774 million in March to $3.7 billion. This is also shown by the increase in its share price, from $2.10 in March 2020 to $10.18 in December 2020. You’ll recall hearing about this in Market Recap and The Analysts a few times on Taking Stock.

Expected pricing

The pricing of the offer has not been revealed but the stock currently trades within the $9 range. This means the offer would likely hover somewhere between $7 and $9. They’re expected to issue at least 123 million new shares in this rights issue, which means they would be seeking to raise roughly a billion dollars.

Less than six months after the acquisition, GK’s strategic initiatives and turnaround plan for Key started bearing fruit – Key turned a net profit of $5.7 million for the third quarter compared to a nine-figure loss the same period last year. Management has cut jobs and implemented less costly reinsurance coverage. General Manager of Key Insurance, Tammara Glaves-Hucey said that she wants to double revenue to $2.7 billion in five years, as part of the turnaround plan.  In previous years, Key Insurance finances have gone into the red but with new management, net premiums are rising and losses are declining. 

Now before, I mentioned that as a part of the acquisition, there were redundancy exercises as a part of the way forward for the company. As a result, administration and other expenses increased by 6.9% when compared to the prior period due to redundancy costs as well as unanticipated legal and professional costs. This worked out to a total of $14 million. Management also said that the effects of the termination of the Motor Quota Share Reinsurance Agreement resulted in a one-time charge of $323 million to the Statement of Comprehensive Income.

Since GK has majority shares in Key Insurance, we can expect that there will be a very big capital injection into the company via the rights issue. That’s in part because Key Insurance graduated from the Junior Market to the Main Market of the Jamaica Stock Exchange in April 2020, which allows it to raise more money. Key Insurance’s authorised share capital was increased from 496 million to 700 million shares. Companies usually issue to the market only a portion of their authorized shares. Key indicated that it plans to issue a minimum of 123 million shares for the rights issue. 

So this is a big week for Key Insurance. We’ll be looking to see the outcome of the rights issue on December 10.  Are you planning to buy into Key Insurance? Why or why not? Leave your comments below.  And remember, you can consult a licensed financial advisor at PROVEN Wealth for advice on whether this stock is right for you. Follow them on social media @weareproven. 

Author: Kalia Ellis

Categories: MoneyMondaysJA