United Bank has floated a week long public auction to sell off 18,514 subscribed shares that were not paid for.
The Bank earned 2.9 million Br from the auction two weeks ago, bringing revenues 76pc above the par value of the shares floated.
The bank added 25pc to the initial par value of its shares, which, upon the foundation of the Bank, were floated at 100 Br. The highest bid per share came in at 176 Br.
The 14 year old bank complains that the absence of a secondary share market, which would have helped determine share value, has made it difficult for it to set a price. In November 2009, when it auctioned 133,477 shares, it circumvented the lack of a secondary market by internally setting the premium price 10pc (10Br) higher. It got a maximum offer of 160 Br for a share and collected a total of 13.3 million Br just one week after the auction had closed, on November 5, 2009.
That first auction was part of the bank’s strategy to increase its authorised capital to a billion Br, and paid up capital to 600 million Br, in an auction that would span three years.
Other banks quickly followed suit with similar auctions, in order to raise capital. This was especially true after a National Bank of Ethiopia (NBE) directive, which required all banks to have a paid up capital of half a billion Birr, came into effect.
Most notable was Nib International Bank (NIB), which sold 80,000 shares in just half a day.
Now United itself has repeated what it has started, in order to collect money for unpaid subscribed shares, before it could begin selling new shares to the public.
“The current sale of leftover subscribed shares is necessary to meet the 600 million Br paid up capital target,” Berhanu Getaneh, president of the bank said. “We are planning further share sales with the aim of reaching one billion Br in paid up capital,” he told Fortune.
This time, United added a 25pc premium to the original 100 Br par value. The tender that closed after a week and a half, drew around 73 offers, from which the 13 highest were declared winners. The person that made the highest offer, 176 Br, bought 1000 shares, the minimum permissible by tender requirements. The lowest accepted bid was 151 Br. The maximum number of shares sold to a single buyer was 2,250.
“The increase, by 76pc, shows the value and trustworthiness of United, and in the absence of a secondary share market can be indicative of demand,” Berhanu told Fortune.
There will be an extraordinary shareholders’ meeting within the next three months to determine how many shares to float each year to reach the one billion Birr target, he added.
Though quickly having become a trend, such auction of shares cannot be a sufficient indicator of their market value, according to Zemedeneh Negatu, managing partner of international consulting firm Ernst & Young, which has done independent valuations for numerous state and private enterprises.
“The bidders do not have any idea what the shares are worth, so they are likely either to offer an overvalued or undervalued price,” he said.
Banks should at least have independent valuations done, using an array of financial and intangible indicators, before setting the premium price when auctioning shares, Zemedeneh recommends.
Both times United offered shares to the public; it had set premium using in house indicators, such as rate of return, according to a high level executive at the Bank. United reported a profit, after tax, of 297.8 million Br in 2011/12 and an earnings per share (EPS) of 52.8 Br. With this, it offered 36pc dividend for fully paid shares.
Overall, with the banking industry giving shareholders an average of 37.7 EPS, the premium price trends that banks currently set for auctions are undervalued, Zemedeneh argues.
Berhanu, however, is of the view that an external valuator can bring no more to the table than what is done in house.
“We have all the financial information,” he said. “Furthermore, we do not just look at the accurate value of a share, when setting premiums, but also an attractive price that would ensure marketability.”
Ultimately, for an economy which is growing the way Ethiopia’s is, both bankers and experts agree that the answer is to develop a secondary share market. However, it is not within the National Bank of Ethiopia’s current plans to open such a market, according to an official from the Banking Supervision Directorate.
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