PFAs and N5bn Share Capital Challenge

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As April 2022 deadline given to Pension Fund Administrators (PFAs) to meet the new N5 billion minimum share capital regime draws closer, Ebere Nwoji reports that operators are no longer at ease in their struggle to hit the mark

The National Pension Commission (PenCom), in April last year announced increase in the minimum share capital of pension fund administrators from the present level of N1 billion to N5 billion. The PenCom, gave the operators 12 months to meet the new capital regime.

Official statistics from the commission shows that before the pronouncement, about four firms have already surpassed the new capital margin while currently no less than seven out of the existing 22 firms have surpassed the new minimum share capital huddle.

For instance, Stanbic IBTC Pension Managers which according to the financial report of pension fund operating managers for the 2020 business year published by the National Pension Commission (PenCom), has successfully accumulated a total share holders’ fund of N64.45 billion against N50.42 billion shareholders fund it accumulated in 2019.

Stanbic IBTC pension Managers’ total assets during the year stood at N80.72 billion against 2019 total assets of N64.93 billion

On its part, Trustfund Pension Plc has a shareholders’ fund of N12.49 billion as against N10.78 billion recorded in 2019.

Total assets under its control in the year stood at N13.75 billion against N12.02 billion of 2019.

ARM Pension Managers Limited has also surpassed the threshold with N9.03 billion shareholders’ fund; against N7.48 billion in 2019. ARM total assets stood at N13.70 billion against N11.32 billion of the preceding year.

FCMB Pensions Limited has equally grown its share capital to N8.5 billion as at October 2021, compared to N3.90 billion in 2020. Its Assets Under Management (AUM) stood at N366.5 billion at the end of last year as against N318.59 billion in 2019.

The NPF Pension Limited, followed suit with shareholders’ fund of N8.012 billion as against 2019 total figure of N5.48 billion; Assets under its control stood at N10.493 billion.

First Guarantee Pension Limited has a shareholders’ fund of N7.26 billion against 2019 figure of N10.86 billion. Total assets for 2020 stood at N7.265 billion against N10.86 billion of 2019.

The next in line was Leadway Pensure Limited with shareholders’ fund of N7.05 billion as against 2019 figure of N6.10 billion, Its total assets stood at N8.67 billion for the period under review against N7.331 billion in 2019.

The next among the seven firms that have crossed the N5 billion minimum share capital is Premium Pension Limited, with N5.31 billion shareholders’ fund.

Racing against Time

The firms currently racing to meet the N5 billion minimum share capital according to the regulator’s report are; Crusader Sterling Pension Limited, with N4.67 billion; Pension Alliance Limited, N4.29 billion; Fidelity Pension Managers Limited, N3.44 billion and NLPC Pension Fund Administrators Limited, N3.23 billion.

Others are; APT Pension Fund Managers Limited, which has N2.68 billion; AIICO Pension Fund Managers Limited has N1.76 billion while OAK Pension Limited, has N1.73 billion.

AXA Mansard Pension, now Tangerine Pension Limited, has N1.70 billion; Veritas Glanvill Pension Limited, has N1.53 billion; IEI Anchor Pension Managers Limited, has N1.37 billion; while Investment One Pension Managers Limited, has N1.26 billion and Radix Pension Managers Limited, N985.68 million.

The increase in the share capital of PFAs from N1 billion to N5 billion, according to PenCom was aimed at boosting their capacity in terms of operational efficiency and service delivery. Six months to the expiration of the deadline, tension has become high among the operating firms who are yet to meet or come closer to the minimum capital.

From the report of the commission on the level of shareholders’ fund accumulated by operators, it is glaring that many are still far from meeting the minimum as a good number of operators are still below N2 billion in terms of their shareholders’ fund accumulation based on December 2020 report released by the regulator.

But at a recent post recapitalisation summit, the Chief Executive Officer of PenOp, Mr Oguche Agudah, said as at present, about 50 percent of the operators have made it.

Industry analyst said 50 per cent of the operators making it less than six months to the expiration of the deadline is not a pass mark as this would lead to serious chaos in the industry if the regulator insists on ringing its wind up bell for the firms in April next year.

Stakeholders’ View

Observers of the pension sector said the share capital increase will really shake the industry considering the fact that since the inception of the Contributory pension scheme 17 years back, operators have not really faced much pressure.

Looking at the structure of the scheme, operators have been easily and coolly going about their businesses without pressure while funds in form of contributors’ money were smoothly flowing into Retirement Savings Accounts of various workers whose contributions they are managing.

Indeed, in the observers’ views, the PFAs and their employees have not faced any tough or turbulent times since inception except that of convincing contributors and retirees to choose between receiving their retirement benefits through Programme Withdrawal and buying annuity plan from insurance firms which was the first competition they faced.

But this did not last long before PenCom ran to their rescue by ordering insurance firms to pay to the PFAs retirees’ funds in their custody.

Analysts viewed that the only challenge ever faced by the PFAs since inception was that of pushing the micro pension scheme which has to do with their workers going into the market to convince the informal sector operators to willingly register and key into the Contributory Pension scheme.

They observed that even with this they have not been able to achieve remarking success prompting the Director General of PenCom, Aisha Dahir Umar, to raise alarm recently that she was not impressed with the very slow pace of growth of the micro pension scheme two years after its launch.

At one of the media fora, the former president of PenOp and Chief Executive officer Leadway Pensure, Ronke Adedeji, said she was not surprised at the slow pace of penetration of the micro pension scheme.

She said operators from the onset knew it would not be as easy as the conventional Contributory Pension scheme which has an element of compulsion built into it by the law establishing it but that the micro pension scheme was optional therefore it would take time for operators to get through to the heart of the target market.

The pioneer Director General of PenCom, Muhammad Ahmad, in one of the pension workshops for lawmakers and stakeholders in pension sector said the masses needed conviction and confidence building from the PFA operators before they could consider saving their hard earned money in their hands.

This, he said, demand sincerity and improved service delivery by the operators especially with the commencement of the pension transfer window.

All these in the view of the sector analysts point to the fact that the PFAs should not only gird up their belt for the new capital base but should be prepared for future challenges especially in the area of not as usual sitting down and be monitoring easy money flowing into contributors’ retirement savings account but should be prepared to hit the market with various ideas and marketing strategies that would make the informal sector operators who are out of pension savings to see the value and key into pension plan to save them from old age poverty.

They also said the PFAs should put on their thinking caps on what to do with the money that would be raised so as to ensure good returns on investment to the new investors that would stake their money in their operations.

At the PFAs post recapitalisation summit, some of the options suggested by the financial experts, advisors and legal luminaries who spoke to the operators were raising money through private equities in addition to the possibility of the umbrella body of operators, the Pension Operators Association (PenOp) engaging the regulator PenCom for a possible extension of the deadline.

Post Recapitalisation Summit

This being the case, PenOp in organising the post recapitalisation summit said its target was to provide an avenue for decision makers and executives in the pension industry to engage various advisers to discuss strategies for raising additional capital and to analyse the outlook of the pension industry post recapitalisation. The event, was attended by shareholders and executive management of a number of Pension Fund Administrators,
Sponsored by leading advisory firms in Nigeria, namely, Ernst and Young, FBNQuest Merchant Bank, Stanbic IBTC Capital, Detail Commercial Solicitors and Agusto & Co, it featured professionals from leading investment banks and legal firms in Nigeria who highlighted various strategies for raising capital.

The issue of recapitalisation was addressed from different angles and the panelists also gave examples and pointers from various industry that had gone through similar exercise before.

Overall, all the panelists were of the view that the Pension Fund Administrators should leverage the recapitalisation exercise as an opportunity to restrategise and reposition their operations to compete better in a more recapitalised and competitive industry.

PenOp said its goal was to use the forum to answer some of the questions in the minds of its members and ensure they were well equipped for issues they might encounter as they work on different strategies towards meeting the recapitalisation requirement.

The PenOp CEO Oguche Agudah, noted that a well-capitalised industry would enable the sector to affect its various shareholders and the Nigerian economy in a positive way.

while insisting that one of the options is for PenOp to engage PenCom in discussion for possible extension of the deadline to ensure that no firm falls by the wayside while saving more Nigerians from the pangs of unemployment, finance experts at the forum insisted that there was need for the operators to go back to the drawing board, agree within their various firms’ management personnel what they would do with the fund when raised.

They were also advised to quickly meet their financial advisors for heart to heart discussion on how to go about raising the money and the use into which they would put the money when it is raised.

In her presentation on Post Recapitalisation Strategy at the workshop, Wonuola Kunle-Bello,Head, Funds and Investment Manager Ratings Augsto &Co, noted that the new capital regime was most likely going to impact operators in many ways among which were operators would scout for additional capital injection.

She said operators would seek to raise funds directly or indirectly.

According to her, for those that would have to raise funds, directly, there would be additional pressure to sweat capital and they would play more aggressive to retain and get new customers.

She said indirectly, operators would gun for higher profit retention and lower dividend payout.

They would opt for business combinations in form of merger and acquisition, they would give room for new entrants through investments by allowing both foreign and local investors to inject money into their Operators

She said these would give room for various considerations in post recapitalisation era especially among firms that would go into mergers.

According to her, these considerations may be in the areas of Culture and Risk Management practices of the firms in question as they might differ therefore the firms in question would have to arrive at agreement point.

Boardroom Culture

She said, “There may be differences in their boardroom culture as well as corporate governance behaviour and they would therefore arrive at point of equilibrium.”
She however projected that despite the recapitalisation challenges, the pension sector would continue to maintain the current growth track at the rate of 18 percent per annum.

She projected that after the sector had overcome the general challenges posed by the COVID-19 pandemic, the pension assets, which at present stands at N13 trillion would hit N20trillion mark by the year 2023 at a projected annual growth rate of 18 percent.
“Given the increase in the minimum share capital requirement for pension companies to N5 billion from the N1 billion, we expect to see business combinations and strategic partnerships in the near term.

“We expect that industry operators would explore investments in the foreign markets to provide real returns to contributors, given the dearth of investible assets and the rising inflation rate in Nigeria. Focus will be on quality of enrollees not just number, “Bello stated.
CEO Stanbic IBTC Capital, Mr Funso Akerele, noted that before the PFAs think about going into the available options left for them to meet the new capital, they should first set their objectives right in terms of usage of the money.

He said their simplest solution is to get their shareholders inject capital through right issues, private placement or private capital raising.

He said another option is for the firms to combine strength through business combinations.
He also said the operators should seek for strategic conversation with their financial advisers on how best to meet the deadline without crashing on the way.

Industry watchers said the new capital requirement would stare up a lot of activities in the industry in the next six months.

According to them, stakeholders should expect right issues, private placement offers, and entrance of foreign investors into the sector and at the long run, there will be stronger industry.

They also cautioned that with the new capital and more activities in the sector, the sector will be more attractive to people who were outside the pension circle to key in but that operators should be careful enough to ensure that none of the bottlenecks currently delaying the prompt payment of retirement savings benefits filter into their post recapitalisation operations.