Bernard Busuulwa
9 June 2008
Nairobi — Bank of Baroda, one of Uganda's oldest banks, which is listed on the Uganda Securities Exchange (USE), is to split its shares.
The share split was approved by the bank's shareholders at an annual general meeting in Kampala last week.
The split is meant to make the shares more available and affordable. The company's good performance in recent years has led to overwhelming demand for the shares that has exceeded average market supply.
Consequently, the share price has accelerated significantly, making it unaffordable for most retail investors. It rose by 230 per cent between last year and in the second quarter of 2008, from Ush1,700 ($0.9) to Ush4,000 ($2.3) making it one of the outstanding performers on the USE.
The shares will be split by adjusting the stock value from Ush100 ($0.06) per share to Ush10 ($0.006) per share.
The share split is also expected to provide better valuation for the company's shares, which are believed to be overpriced.
"The share split will make more shares available on the market for investors while enabling people to dispose off the shares that they might want to sell. It will also provide a better valuation for the company's shares on the stock exchange," said V. Santhanaraman, executive director of Bank of Baroda, India, the parent company of Bank of Baroda Uganda, which has 80 per cent shareholding.
The share split is expected to boost returns for Baroda's retail investors, who initially acquired relatively few shares during its initial public offering (IPO) in 2002 but are keen on reaping profits from its current good performance.
Though Baroda's IPO price was Ush600 ($0.34), it has risen to Ush4,000 ($2.3) in 6 years, thereby reflecting huge capital gains for its investors on the strength of sustained positive performance indicators. The share price has been gaining an average of Ush30 ($0.02) per trading session since early this year.
Despite that, however, the bank's final dividend has remained at Ush70 ($0.04) for the past two years.
The impressive performance posted by the company over the past six years is believed to have caused many of its investors to hold onto their stock in the hope of more gains, leaving very few shares available for trading on its counter compared with rival counters like Stanbic Bank Uganda Ltd, which is rated as one of the most active counters on the USE.
Although Bank of Uganda's efforts at controlling inflation, currently at 11.2 per cent, coupled with the impact of the recent Safaricom IPO in Kenya, have severely reduced the level of liquidity in the economy, Bank of Baroda is confident it will raise enough money to sustain its aggressive lending activities.
According to K.K Shukla, the bank's managing director, the bank plans to liquidate a substantial portion of its Ush90 billion ($51.4 million) portfolio of Treasury-Bills and bonds through utilising maturity periods in order to derive more resources for lending.
The bank has projected 20 per cent growth in deposits and 40 per cent growth in advances, which will enable it attain a credit-to-deposit ratio of 60 per cent by the end of December this year.
Operating profit is expected to increase by 25 per cent, while gross non-performing assets are targeted at 0.20 per cent when based on total advances. But net performing assets are expected to remain at zero.
Currently, the bank is rated second in the industry in terms of asset base.
The bank is contemplating listing more of its shares on the USE in the near future, according to Dr John Wilson Muwanga, the bank's board chairman.
Bank of Baroda is keen on retaining its conservative outlook, mainly because of its humble roots both in Uganda and India. Bank of Baroda, India, which is 100 years old, has 2,853 branches in 25 countries.
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