Viewpoints | Dec 07,2019
Mar 16 , 2019
By FASIKA TADESSE ( FORTUNE STAFF WRITER )
United Bank received offers nine times the firm's par value, pulling in the highest bid of 1,027 Br a share in the latest auction held by the Bank.
United offered 1,659 shares, which sold during the auction at the headquarters of the Bank on March 4, 2019. The shares have a par value of 100 Br.
During the latest round, 15 shares were purchased at a nine-fold offer by three siblings - Konjit Ayfokiru, Netsanet Ayfokiru and Tigist Ayfokiru. Two other bidders offered 1,006 Br for four shares and a single share, the second highest offers.
The Firm auctioned the shares two and a half years after the central bank ordered all private banks and insurers to return share certificates held by non-national shareholders and auction off the shares for public subscription. The Central Bank has also stated that the amount of money offered above par value has to go to the national treasury.
Following this instruction of the governing bank, United auctioned shares that generated close to half a million Birr. Close to two-thirds of the total will go to the national treasury.
The offer price shows at buyers highly overvalued shares of the bank, according to Abdulmenan Mohammed, an accounts manager at Portobello Group Ltd, in London, United Kingdom.
"If we take the latest earnings per share of the Bank, 35.4 Br, the buyer would enjoy less than 3.5pc return per annum, which is half the bank interest rate," Abdulmenan said.
Commercial banks have been paying seven percent interest rates on deposit since last year, when the rate was increased by the central bank from five percent to encourage domestic savings.
When other deductions such as legal reserves and dividend taxes are taken into account, the return to the buyer would be much smaller, according to the expert.
With the current highest offer, the payback period will be 43 years based on a dividend per share of 24 Br, deducting 25pc for legal reserve and 10pc in taxes from last year's shareholder return. United, which was established in 1998, has declared a 50pc growth in its net profit, recording 573.6 million Br last financial year.
“A reasonable valuation would give us a share value of a fifth of what is offered,” said Abdulmenan.
In the last round of auctions, the Bank received high offers of 1,012 Br and 1,700 Br per share in two different auctions.
A year and a half ago, the Bank was taken to court as a co-defendant with United Insurance and the National Bank of Ethiopia for charges brought by Sophia Bekele, an Ethiopian native with American nationality. Sophia charged that she has lost shares of United Bank and United Insurance inherited from her late father by the central bank's directive.
However, this seems to be changing as the government is crafting a law that will enable the diaspora to hold shares in the financial industry.
"The bill is drafted and will be tabled to the relevant legislating body soon," Yinager Dessie (PhD), governor of the National Bank of Ethiopia, told journalists at the end of last month.
PUBLISHED ON
Mar 16,2019 [ VOL
19 , NO
985]
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