The shares of Wegagen Bank S.C. with a par value of 1,000 Birr have commanded a price as high as 4,197.7 Br in their second auction although the earnings per share (EPS) of the Bank have been in long-term decline.
Except for the surge in 2011, The Bank’s dividend per share, the amount that goes to the pockets of shareholders annually, has been declining over the past six years. This is due in large part to the capitalisation policy of the Bank, whose paid up capital is 2.1 billion Br – the second highest among private banks next to Awash Bank.
Wegagen saw a vibrant highest offer four fold of its par value for seven shares which were returned by foreign nationals of Ethiopian origin.
The returned shares were auctioned on July 6, 2017, in the presence of 20 bidders, who were competing for 23,905 shares worth close to 24 million Br. The lowest bid given during the auction was 1000 Br.
The Bank managed to sell all of the availed shares in the second round of auction, although more shares are expected to be returned by foreigners, who account for less than one percent of the Bank’s paid up capital.
The shares were sold in an open auction system, where bidders were allowed to bid for any number of shares they wanted to buy. It is distinct from the system used in the first round of auction.
Two and a half months ago, the Bank made around 92,000 shares returned by foreigners available for public subscription and managed to sell around 11,000 shares, receiving the highest offer of 1,430 Br a share, which was 43pc higher than that of the par value of the Bank.
The bid offered during the first round of auction, according to an expert, was found to be more sensible than others in the banking industry.
The results in the first round revealed that the bidders for Wegagen shares had displayed sound financial sensibility, according to Abdulmenan Mohammed, an expert with over 15 years of experience in auditing, accounting and finance in Ethiopia and the United Kingdom.
The second round of auction, however, exhibited a threefold hike compared to the offer given in the first round. This, for the industry insider, is not financially sensible for a company whose earnings per share have been in a spiral of decline over the decade.
Moreover, the shareholders’ return of Wegagen is less than not only its peers but also of many newcomers. In 2015/16, the Bank’s dividend per share was 166.5 Br, which is three times lower than its closest competitor, Dashen Bank.
“The most sensible offer for shares of Wegagen should not be more than a premium of 50pc (1,500 Birr),” Abdulmenan said. “An offer of 4,197 Br for shares of Wegagen has no financial justification. It rather shows a complete lack of financial understanding.”
Getshu Begashaw, director of treasury management, disagrees with Abdulmenan. He linked the offer with the growing profit trends of the company.
“Considering our profit growth and stand in the industry, the offer is not over inflated,” Gashaw said.
This year, the Bank grossed an unaudited profit of 797 million Br, which is 50pc higher than the previous fiscal year, making the company the fourth highest profit earner in the country next to Awash, Dashen and Abyssinia.
Offering inflated bids is not only singular to Wegagen.
Ever since the National Bank of Ethiopia (NBE) directed all the financial institutions to sell shares owned by foreign nationals publicly, the financial industry has been receiving offers as high as 26 times that of par value, a bid given by the Bank of Abyssinia, the nearest competitor to Wegagen.
Two months ago, Dashen, a peer of Wegagen, managed to get the highest offer of 5,526 Br per share, which was five times the par value.
The second round of auction was held a week before the Bank changed its two-decade old brand logo after assessing the perception of customers and shareholders about the Bank for a year.
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