Pan Africa to use dividend cash for Gateway buyout

Pan Africa Insurance Holdings expects to spend cash saved from the non-payment of dividend for the 2014 financial year on acquisition of Gateway Insurance and the construction of a new office block.

The insurer announced on Friday that it had opted to issue bonus shares instead of paying out a cash dividend, a decision that allows it to save tens of millions of shillings.

Going by Pan Africa’s dividend payment trend over the past five years, the insurance group could save up to Sh400 million, but the final figure will depend on the bonus issue, which will give the actual amount of cash reserves of the company to be capitalised.

“This (bonus) is in lieu of cash dividend as we utilise the surplus cash on our new office development and the acquisition of Gateway,” said Pan Africa in a statement.

The decision came in a year when the firm’s net profit dropped 30.3 per cent to Sh871.1 million, weighed down by reduced sales of its properties and lower gains in its equities portfolio.

Pan Africa has proposed a bonus issue of one new share for every two held, a move that will increase the volume of its ordinary shares by a third to 144 million units.

This will see it capitalise the amount it would otherwise have paid out in cash. The company has been paying a cash dividend for the past five years, with 2008 marking the last dividend interruption.

The highest dividend payout was in 2013 when it stood at Sh4.5 per share, adding up to a total distribution of Sh432 million.

READ: Pan Africa targets Gateway Insurance takeover

The cash-retention strategy will help the company fund the two projects that are expected to cost nearly Sh3 billion. The firm said it is working to acquire at least 51 per cent of Gateway’s shares, a move that will give it an entry in the general insurance business.

Pan Africa announced last year that it intends to further increase its stake in Gateway, but did not specify to what level the additional share purchase will take its interest in the insurer.

The NSE-listed firm is, however, expected to spend at least Sh600 million in the acquisition.

Pan Africa currently offers life insurance covers and invests the premiums in real estate, equities and fixed income securities to boost returns from the long-term underwriting operation.

Acquisition of a controlling stake in Gateway will see it diversify into the general insurance segment with covers including fire, motor vehicle and personal accident. It will mark Pan Africa’s re-entry in general insurance which it exited in 2011.