Zemen Bank S.C. held a tax sale of 25 shares belonging to one of its shareholders on March 30, 2017. The auction attracted a highest offer of 2,000 Br per share for all the shares.
While the auction was not part of the sale of shares belonging to foreign nationals, the Bank worked in conjunction with the Ethiopian Revenue & Customs Authority on the sale, which was ordered to pay back a tax bill.
The highest bid was offered by Kinde Andarge, a local businessman.
“It is not necessarily the value of the Bank,” he explained to Fortune. “It is the economic atmosphere of the time. Money is not worth as much as it used to be and inflation is increasing. Bank shares are a reliable place to keep your money in such times.”
However, the Bank’s stablilty is also an attractive feature for buyers.
“The Bank is young, but it has been doing very well lately,” said a bidder during the Bank’s first auction. “It is a stable place to invest when you want to save for the future.”
Zemen Bank, which was established over eight years ago, has 18 branches in the country. Last year, it reported a profit of 203 million Br, which was 32pc higher than the previous fiscal year. The Bank’s impressive performance was one of the attracting factors for the potential shareholders, as well as its stability.
Under the Ethiopian tax code, cases of unpaid taxes can result in having to liquidate assets to repay debts to the Revenue & Customs Authority.
In recent weeks, bank shares have become more available, because of a November 2016 directive that directed banks to return share certificates of foreign nationals of Ethiopian origin. This has seemed to lead to a rush of potential shareholders trying to get a foot in the door of the banking industry.
“Zemen attracted bids that you would expect for a process like this,” explained a financial industry expert, about the Bank’s first auction process.
However, going up to 100pc over the par value of the shares in the current auction is still an unwise decision.
“The Bank’s returns do not justify this at all,” says the financial expert. “An offer of 2,000 Br is still too high for the shares. Up to 40pc of the par value is an acceptable value.”
The Bank concluded two rounds of auctioning of shares returned from foreign nationals of Ethiopian origin On March 3, 2017. However, the date for the next auction, in which the Bank will auction off its remaining shares, is yet to be announced. The highest price offered during the auction was 1,550 Br, for shares with a par value of 1,000 Br. This means that the bid during the latest auction was an increase of 29pc on the last highest bid.
Other banks such as Awash International Bank (AIB) and Nib International Bank received inflated bids during their share auctions, with AIB raking in a bid of 20,000 Br per share, and the Bank of Abyssinia receiving a bid of around 26 times its par value.
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