I&M Bank Rwanda’s strong financial position and low share price offer are expected to woo long-term investors to buy a stake in the bank.
The Rwandan government is offloading more than 99 million shares, a 19.81 stake, of I&M Bank, a subsidiary of Nairobi-headquartered I&M Bank Holdings, a listed company on the Nairobi Securities Exchange, through an initial public offering.
The offer went public on February 14.
Rwanda Finance and Economic Planning Minister Claver Gatete said the bank’s financial position and assets are strong enough to bring in investors.
The bank reported a net income of Rwf5.8 billion ($7 million) for the financial year ending December 2016. It is third in terms of total assets and fourth in terms of deposits among banks in the country.
“When investing in a product like this one, you are investing long term,” Mr Gatete said.
Africa continues to be a preferred destination for international capital due to the prospects for high returns on investment.
The PwC 2016 Africa Capital Markets Watch report on African equity markets said $1.5bn was raised in IPO proceeds in 2016 from the continent.
PwC noted an overall upward trend in IPO activity over the five-year period.
“Over the past five years, there have been 110 IPOs, raising $6.5 billion, by African companies on exchanges worldwide and non-African companies on African exchanges,” the report states.
The low pricing of the IPO is another advantage, at Rwf90 ($0.11) per share.
Some 60 per cent of the 99 million shares on offer will be reserved for Rwandans and East African citizens, and 40 per cent for other investors. The proceeds, valued at Rwf8.9 billion ($10.8 million), are set to be invested in constructing the Bugesera International Airport.
The Rwandan government will pocket Rwf8.26 billion ($10 million) in earnings from the divestiture and a further Rwf459.98 million ($557,000) in dividend pay.
“The dividends for the financial year ended December 2016 will be paid to the government of Rwanda,” reads the offer prospectus.
Rwanda’s banking sector loans are concentrated in the mortgages, hotels and trade sectors, exposing banks to liquidity concerns in case of slow business.
The growing competition in the banking sector has also been cited as a risk investors should watch for when buying I&M Bank stock.
Rwanda has 12 commercial banks, some with a regional presence.
Exchange rate fluctuations have also affected financial institutions’ earnings. From January 2015 to September 2016, the Rwandan franc depreciated by 14 per cent. Despite the depreciation. I&M Bank had the lowest cost to income ratio in 2015.
The bank was ranked the most efficient bank in the sector with a Return on Equity of 22.17 per cent as of September 2016.
