Bank of Abyssinia shares auctioned by Nile Insurance S.C has attracted bid 224 percent above their par value. Nile Insurance S.C is disposing shares it owned in the bank following a 2008 law which caps the maximum amount of shares a shareholder can hold in a bank to 5 percent of the bank's capital.
In a bid to comply with the law, Nile Insurance, is reducing its shares worth 49.2 million Ethiopian birr to 31.5 million birr by offering for sale 708,704 shares. The National Bank of Ethiopia has set a three year timetable, which will expire in August 2013, for "influential Share holders" to reduce their interest to the maximum amount required by the law.
The starting price for the 360,000 Bank of Abyssinia shares owned by Nile Insurance was set at 40 birr inclusive of 60 percent of premium added by the insurance company. When bids were opened six weeks ago, the average offer was 46 birr per share.
With the absence of secondary share market in Ethiopia to determine the value of share, financial institutions have recently started to determine the amount of premium to add to the par value by assessing the assets of the bank and demand from outsider.
Over 20 bidders made offer above the average price during the current auction. Financial institutions also take the offer received through auction as an indicator of the market value of the shares.
"The gap between the amount the highest bidder offered for a share and the face value is a good indicator of the positive perception potential shareholders have towards the banks financial standing" Dawit G. Amanuel, CEO of Nile Insurance, told Fortune.
Satisfied with the previous action, Nile has floated another batch of 551,894 shares this past week, with a value of 13 million birr. The bid is expected to be opened on July 31, 3013.
Source: Fortune
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