Bidders Overreach for United Shares

United Bank held with the trend of receiving inflated bids, with an offer of 1,012 Br per share during its latest share auction. The offer was made during the second round of share sales for the Bank. Its first round of share sales attracted a highest offer of 1,700 Br per share. The Bank put a total of 33 million Br worth of shares up for auction.

United Bank’s share offer of 1,012 Br puts it in the list of banks that received inflated bids. The offer is just over 10 times the Bank’s par value of 100 Br.

The Bank received 344 bids during the second round of the auction, both from individuals and companies.

While this is a usual trend for the recent line up of bank share auctions, experts are still wary about the implications that such high bids could have for the financial sector.

“This is another over inflated offer. Buying a share with par value of Br 100 for Br 1,012 doesn’t make any financial sense,” says Abdulmenan Mohammed Hamza, an analyst at London Portobello. “To recoup investment of 1,012 Br takes more than fifty years. This is beyond comprehension.”

“If we look at the matter from a different perspective, the return of the investor will be 1.8pc. This is far below saving interest rate,” he adds.

Previous bidding at other banks showed that potential investors in the financial industry are willing to put up large amounts of money for even small shares of financial institutions. Awash International Bank (AIB) received a bid 20 times its par value during its share auction, and Abyssinia Bank saw an offer of over 600 Br for its shares, which have a par value of 25 Br.

“The bidders have their own motivations for making a bid like this,” says Taye Dibekulu, president of the Bank. “It is possible that because banks do not sell shares often, people are trying to get some amount of shares in the Bank. They can then grow their investment. ”

“The financial sector is relatively more regulated than others,” he added. “It gives people a sense of security.”

United’s offer of just over 11pc over par value, is one of the lowest raises on par value so far, it is still a sign of a worrying trend, according to experts who have been following the auctions.

The bank’s total paid up capital reached 1.25 billion Br during last fiscal year, an increase of around 28pc from the previous year’s total of 974.7 million Br. The bank’s earnings per share also showed an increase, going from 29.82 Br in 2014/15, to 32.44 in 2015/16.

The Bank’s profits showed an increase as well, rising to 339 million Br from 281.3 million Br the previous year. United also opened 13 new branches in Addis Abeba during the last fiscal year.

Foreign nationals or organizations fully or partially owned by foreign nationals are not allowed to own shares in Ethiopian banks, in line with the law governing banking business in Ethiopia. The directive was issued in time for the banks’ presentation of their annual reports to their shareholders. However, the financial institutions will not receive any value over the par value of their shares, as the premiums will go to the national treasury.

On average, shares of banks are worth 40pc more than their par values. Accordingly, if foreign nationals of Ethiopian origin hold one percent of the private banks share, the treasury will get about 65 million Br from the auction sales of the returned shares.

United Bank was founded in 1998 as a share company. Currently, the bank has over 2990 shareholders.


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