BANK OF KIGALI IPO ANALYSIS PART 1

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Bank of Kigali was founded in 1966. It has since grown to become the leading bank in Rwanda by assets, loans, deposits and shareholders’ equity. It has 33 branches and 26 Automatic Teller Machines.

Bank of Kigali (also referred to as “The Bank”) IPO (also known as “The Offer”) involves 300,304,400 shares for sale.

The Government of Rwanda will offer 133,467,400 shares for sale while a further 166,837,000 new shares will be created for the offering

The bank currently has 500,500,000 issued shares

In this analysis, the amounts are in Kenya Shillings so as to give Kenyan Investors figures they can relate to

1 Kshs. = 6.68549 RWF

Using the exchange rate above, the IPO price will be about Kshs. 18.7/= per share (125 Rwandan Francs per share)

	Kshs.
AUTHORISED SHARE CAPITAL	1.050 BILLION
NET PROFIT AS AT 31.12.2010	924.24 MILLION
EARNINGS PER SHARE (EPS)	1.85/=
FORECASTED PROFIT FOR 31.12.2011	1.152 BILLION
FORECASTED EPS FOR 31.12.2011	1.73/=

After the IPO, the number of issued shares will rise to 667,337,000.

At the offer price of Kshs. 18.7/=, investors will be offered a stake of the bank at a P.E Ratio of 10.1 (Based on the issued 500,500,000 shares). This is a fair valuation of the company, by all means. I am actually surprised that the bank did not strive to offer the shares to investors at a lower price to earnings ratio. That is however unlikely to put a dampener on the offer.

The bank plans to use the proceeds to help in extending their reach into more areas by opening more branches, enhancing their efficiency by undertaking higher capacity electronic banking channels and also growing their loan book

Bank of Kigali deals in both retail and corporate banking. Plans to offer private banking are also in the pipeline. As at 31.12.2010, the bank had 64,843 retail clients.

But it is in the corporate field where the bank has cut a niche for itself. This is no big surprise as in its prospectus, the bank quotes estimates which state that upto 90% of Rwanda’s population is unbanked. Of the Total Customer Deposits and Total Loans Advanced by the Bank of Rwanda, Corporate Banking took up 73% and 805 of the amounts, respectively.

The Bank in addition also has 1440 Corporate Customers, 2297 SME Customers and 1084 Non Banking Association Customers  

	2010       (Amounts in Kshs.)	2009       (Amounts in Kshs.)	% CHANGE
TOTAL ASSETS	29.6 BILLION	22.7 BILLIION	+30.4%
NET LOANS AND ADVANCES	15.2 BILLION	11.5 BILLION	+32.2%
TOTAL DEPOSITS	23.1 BILLION	18.64 BILLION	+23.9%
LOAN TO DEPOSIT RATIO	65.6%	61.7%	+3.9%
NET INTEREST INCOME	1.8 BILLION	1.53 BILLION	+17.65%
OPERATING INCOME	3.2 BILLION	2.4 BILLION	+33.33%
OPERATING EXPENSE	1.5 BILLION	1.06 BILION	+41.5%
PROFIT BEFORE PROVISIONS	1.66 BILLION	1.34 BILLION	+23.9%
PROFIT FOR THE YEAR	924 MILLION	791 MILLION	+16.8%

The bank continued to grow for the first quarter of the year as is evident from the table below

	1ST QUARTER 2011             (Amounts in Kshs.)	% CHANGE FROM 1ST QUARTER   2010
TOTAL ASSETS	31.6 BILLION	+34.9%
NET LOANS AND ADVANCES	15.7 BILLION	+24.1%
TOTAL DEPOSITS	24.1 BILLION	+28.4%
LOAN TO DEPOSIT RATIO	65%	-2.3%
NET INTEREST INCOME	410 MILLION	+50.74%
OPERATING INCOME	953.6 MILLION	+38.7%
OPERATING EXPENSE	459.7 MILLION	+42.3%
PROFIT BEFORE PROVISIONS	494 MILLION	+35.2%
PROFIT FOR THE YEAR	286.4 MILLION	+125.3%

On this evidence, the bank is on target to achieve its targeted profit for the full year.

The following are the figures for 3 Kenyan banks growth the 1^st Quarter 2011, for the same metrics I used for Bank of Kigali above 

	EQUITY BANK GROUP	KENYA COMMERCIAL BANK GROUP	THE CO-OPERATIVE BANK OF KENYA
TOTAL ASSETS	+38.8%	+22.78%	+39.18%
NET LOANS AND ADVANCES	+30.28%	+23%	+40.7%
CUSTOMER DEPOSITS	+43.18%	+12.9%	+35.9%
LOAN:DEPOSIT RATIO	-7.88%	-6.2%	-0.03%
NET INTEREST INCOME	+38.9%	+32%	+46.4%
TOTAL OPERATING INCOME	+40.1%	+21.86%	+41.1%
TOTAL OPERATING EXPENSE	+21.9%	+17.79%	+30.23%
PROFIT BEFORE TAX	+72.8%	+31.6%	+57.4%
PROFIT AFTER TAX	+86.8%	+33.3%	+57.7%

Retail accounts grew by 32%, from 49,100 in 2009 to 64,843 by the close of 2010

The bank over the past year has increased its ATMs from 6 to 26

Branches increased by 15 to 33 as at the end of last year. Over the next 2 years, Bank of Kigali aims to have 60 branches.

The Cost to Income ratio might be hurt by this development. At 47.5%, the banks Cost to Income ratio is excellent in relation to Kenyan listed banks, though they are much bigger to be fair. But whether this figure can be maintained at this current levels remains to be seen in the wake of the banks impending expansion. Indeed, the ratio has been increasing over the past 2 years from 39.8% in 2008 and 44.1% in 2009

Return on Assets went down to 3.5% in 2010 from 3.95 in 2009

Return on Equity was also down from 30.7% in 2009 to 24.5% in 2010

PRE-IPO SHAREHOLDING STRUCTURE
	NUMBER OF SHARES	PERCENTAGE OF TOTAL HOLDING
GOVERNMENT OF RWANDA	332,002,000	66.33%
OTHERS	168,498,000	33.67%
TOTAL	500,500,000	100%

  

POST-IPO SHAREHOLDING STRUCTURE
	NUMBER OF SHARES	PERCENTAGE OF TOTAL HOLDING
GOVERNMENT OF RWANDA	198,534,600	29.75%
OTHERS	468,498,000	25.25%
OFFER SHARES	300,304,000	45%
TOTAL	667,337,000	100%

An international pool of investors will be offered 40% of the shares on offer. The remaining 60% will be offered to the domestic pool. This is further broken down as follows:

Retail East Africans – 27.5%

Institutional East Africans (Not Rwandan) – 15%

Institutional Rwandans – 15%

Employees and Directors – 2.5%

Employees will be offered 7.5 million shares through an ESOP. They will be given a loan which will cater for upto 75% of the purchase price. The loans will be repaid at an annual rate of 7% per annum, for a period of 5 years

In PART II, I shall look at some economic indicators and how Bank of Kigali fits into them