KARACHI: A proposed merger between the Pakistan Industrial Credit and Investment Corporation (Picic) Insurance Ltd and the Crescent Star Insurance Ltd (CSIL) has fallen apart after the latter became disillusioned by Picic’s balance sheet during due diligence.

The information was disseminated at the Pakistan Stock Exchange (PSX) on Monday. CSIL’s Managing Director and Chief Executive Officer Naim Ahmed, however, affirmed that a memorandum of understanding with Pak-Kuwait Takaful has been signed and now awaits approval of the regulators.

He told Dawn the company would continue to concentrate on the core business of insurance, but it also aimed at making inroads in the food and steel sectors.

The company’s food subsidiary, Crescent Star Foods, recently launched its first restaurant of fried chicken chain ‘The Golden Chick’ in Karachi.

He said two more restaurants would be opened this year in Lahore, one of it being the Texas-based food chain’s flagship drive-in. “Besides, Crescent Foods has also acquired the franchise of United Arab Emirates-based Bombay Chowpatty,” the CSIL MD said.

Apart from food and insurance segments, the company’s largest investment was in Dost Steels Limited (DSL), a listed company. Envisioned at the time of its incorporation as the country’s largest re-bar rolling mill with an annual capacity of 350,000 tonnes, the DSL fell upon bad times.

“Adverse geopolitical conditions and security situation in the country, together with the 2008 financial crisis caused delays in engineering, procurement and construction (EPC) contractor timeline,” says a steel sector analyst.

He said his company had invested Rs450 million in the DSL. It held 30 per cent stake in the company with three members on the board, which made the CSIL the largest stakeholder in the steel company.

The DSL requires capital injection for completion and hot commissioning of the plant under a restructuring and rehabilitation plan approved by the board and the syndicate lenders, analysts watching the developments said.

Late last month, the Dost Steels’ board announced right issue at 368pc at discounted price of Rs4.50 for the 10-rupee share.

An extraordinary general meeting of shareholders has approved the right issue. With the CSIL as the lead restructures, an agreement has been signed with the syndicate of creditors to resolve working capital issues by restructuring debt. It is up for regulatory approvals.

Mr Ahmed did not see the recent budgetary measures as crowning blow to the insurance industry. He thought that an increase in tax by 15pc on investment income might not make significant impact on the bottom line.

As for tax on premium, he said the imposition of 4pc tax for non-filers against 2pc for filers of tax returns could also go to streamline the business since insurance companies like banks would now be able to follow the basic rule of ‘know your customer’.

Published in Dawn, June 14th, 2016