Awash Bank’s share value has soared to new heights, with the highest offer of 20,137 Br for a single share, as the Bank’s share auction comes to a close. The offer was made during the third round of bidding that was held on February 23, 2017, at the headquarter of the Bank.
Two weeks ago, Awash availed a total of about 21,000 shares for public auction in four rounds. The shares were returned by foreign citizens of Ethiopian origin by the order of National Bank to all banks three months ago.
During the first round, the Bank manager to garner the highest bid offer of 14,000 Br for a lot with two shares. At the time, the fiercest competition for the shares was over smaller lots.
The offer of 20,137 Br per share during the third round was for a lot with two shares.
“It shows a lack of financial understanding,” says a financial expert with over two decades of experience in the banking industry. “The most that should be paid for bank shares is about 30pc or 40pc above the par value. It seems strange that someone would bid that much for so few shares.”
The offer was around 20 times the par value of the shares, which are valued at 1,000 Br.
“The Bank will have to be careful that there is no other motivation for the bid,” he added.
A senior executive at the Bank is also unsure about the motivation behind such high bids.
“The perception of the bidder is that the banking sector is the most profitable. However, most people do not look at the environment that the profit is created in,” said the senior executive of the Bank who wished to remain anonymous.
In fact, the total profit the 16 private banks earned in 2013/14 fiscal year was 3.6 billion Br, and increased to 4.4 billion Br during the past fiscal year showing close to a billion Birr of upsurge.
“Depending on how the Bank grows, earnings per share could fall even further. A bid like this has no visible economic justification,” said a senior executive at Awash.
Awash has been registering a decline in shareholders’ return for the past five years, save 2014, when it saw a bounce back. Last year, it paid a net dividend per share of 238 Br. Accordingly, the person who offered 20,000 Br needs to wait over 80 years to recover her investment assuming that Awash pays the same amount of dividend every year.
Last year, Awash reported its lowest earnings per share of 371 Br in a decade.
If the past seven years of performance in the industry serves as a guide, competition has driven DPS down considerably. And there is hardly any reason not to believe this trend will continue, according to Abdulmenan Mohammed Hamza, in a commentary written for Fortune a week ago.
“With very generous assumptions, the shares of AIB should not be valued more than 3,500 Br,” he wrote.
Foreign nationals or organisations fully or partially owned by foreign nationals are not allowed to own shares in Ethiopian banks, according to the banking business proclamation of 2009. The directive enforcing the limitations in the proclamation was issued in November 2016, in time for the banks’ presentation of their annual reports to their shareholders.
The National Bank requires the shares to be put up for a public and opened for auction by the Banks. The money above the par value of the shares will go to the national treasury.
On average, shares of banks are worth 40pc more than their par value. Foreign nationals of Ethiopian origin held an estimated one percent of the shares in private banks, meaning that the treasury will get about 65 million Br from the auction sales of the returned shares by all private banks.
Awash was the first bank to issue a tender for the shares of foreign citizens of Ethiopian origin. Banks such as Nib and Abyssinia have also issued tenders.
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