Highest Offer Holds No Water for Abyssinia

The Bank's highest offer was around 5000pc above its par value

First round share auctions at the Abyssinia Bank has resulted in the withdrawal of the highest bid, an offer of 1,410 Br per share. It is 56 folds of the par value, offered by a local businessman, Anley Alemu Seyoum.

Abyssinia has auctioned off around 1,800 shares, with a par value of 25 Br this week, although it has a total of 656,573 shares available for public subscriptions, worth a total of 16,414,325 Br, which is 1.2pc of the Bank’s paid up capital.

Yet, the offer by the businessman was made mistakely, after the bidder failed to take not that the original per value was at 25 Br, unlike many of the banks and insurance firms which have per value of 1,000 Br.

“The bid was an error,” Anley told Fortune. “When the form was filled in, there was a miscalculation of the values. I’ll not be completing the sale of the bids.”

The businessman is subjected to loss the money has has deposited to secure the bid, presented at the auction, according to Ethiopia’s law.

The second highest bid was for 660 Br per share.

The auction was the latest in a line of auctions of bank shares returned by foreign nationals of Ethiopian origin. Previous auctions, by Awash International Bank (AIB) and Berhan Bank, also reached unexpected heights, with AIB bringing in the highest bid of 20,000 Br from four rounds of bidding.

The high bids were worrying to banking sector experts.

“If it was a serious offer, it would make no financial sense,” says a banking industry expert. “In any other case, there is very little justification for this kind of offer.”

Abyssinia reported its highest growth in six years last year, showing a 30pc rise in its net profits to 375 million Br. It also saw a 13.2pc increase in its earnings per share, to 315.4Br, marking a comeback for the Bank which experienced a fall in earning per share (EPS) over the previous two years.

However, the growth of shareholders’ return in some banks in the last fiscal year is not necessarily an indication of a good investment, according to the banking expert.

“Past experience shows that banks’ scramble to compete and capitalize in the next few years which will drive down EPS as well as dividends per share. So, bidders should have a clear idea of the past performances of banks and what the future holds in their pricing of shares,” says a banking industry expert.

The Bank’s management agrees with the assessment of the experts.

“The bid seemed a little excessive, especially taking into account the par value of the shares. A 5000pc increase on the par value is too much,” said a senior director at the Bank. “It seems as though some people do not understand how bank shares should be valued.”

The pay back period for the 1,410 bid price is 238 years or a return of less than 0.5pc.

The overvaluing of shares in banks seems to be emerging as a trend in the banking sector. AIB, the first bank to put its shares up for auction received a record high bid of 20,000 Br. At the time, experts explained that it was an economically unsound decision.

“The bid price indicates breathtaking lack of financial awareness,” said Abdulmenan Mohammed Hamza, a financial analyst with London Portobello, about the AIB bid.

The shares were returned in line with a November 2016 directive issued by the National Bank of Ethiopia, which directed the return of any bank share certificates owned by people with foreign citizenship. The premiums on the bank shares which is the money over the par value of the shares, will go to the national treasury. AIB, Berhan and Zemen have already held their auctions with other banks expected to hold auctions in the near future.


Published on Mar 11,2017 [ Vol 17 ,No 879]



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