27 May 2017

Ethiopia: NIB Auction Ends With Three Fold of Its Par

The Bank put up 8.5 million worth of shares for sale

Nib Insurance S.C.'s shares auction has attracted offers three times that of the Firm's par value, pulling in the highest bid of 1,720 Br per share in the first round of auction. The offer was to buy 163 shares.

The Firm put up 8.5 million Br worth of shares for sale, although not all of them sold. The remaining shares will be auctioned in the next month. The auction was held in three rounds at the headquarters of the Bank.

Nib managed to sell 85pc of its shares during the first and second rounds of auction, which were held in March and April 2017, respectively. However, the third round, which was held last Friday, did not attract the attention of bidders like the previous rounds as it attracted the attention of only three bidders for 1.3 million Br worth of shares.

The Firm auctioned its shares eight months after the Central Bank directed all private banks and insurers to return the share certificates of foreign shareholders and auction the shares for public subscription.

Since then, banks and insurance companies have been selling the shares, some receiving inflated and insensible offers, according to industry insiders.

Nile, Awash, Lucy, Nib and Lion Insurances are among insurers that have held auctions.

The highest bid at Nib is modest compared with the trend observed with other insurers. Nile Insurance, which held its auction a month ago, received 43pc above its par value and Lion Insurance has seen bids of up to 200pc of its par value.

An expert who has decades of experience in the insurance and banking industries believes that the offer might not reflect the reality in the industry.

"The offer might not show the real value of the share as the volume of shares bought by the highest bidder is small," said the expert, who has consulted banks and insurance companies for more than a decade. "Considering the demand for Nib's shares is modest, I think it is enough to offer between 30pc and 40pc for a single share."

The Bank's senior executive also shares the argument of the expert.

"In a country where the stock market does not exist, it is not right to say whether the offer is sensible or not," said the executive of Nib. "Also, people are competing for small shares, which makes it harder to speculate."

Founded 14 years ago, although its profit was better than some industry competitors, Nib was among ten insurers that saw a considerable profit decline last year. Its profit dropped by 25pc to 42 million Br. Its industry competitors, Nile Insurance and Oromia Insurance reported profit declines of 57pc and 27pc, respectively.

However, Nib's shareholders' return has dropped to 216 Br from 300 Br, due to a surge in paid up capital and a drop in the operational result.

The past year was not only challenging for Nib. The insurance industry grossed a profit of about one billion Br last year, with Nib sharing 4.2pc.

Established with a paid up capital of 30 million Br, Nib currently has a capital of more than 235 million Br. The firm has written a premium of 334 million Br in the past nine months of the current fiscal year, representing about six percent of the industry.

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