Baroda to offer shareholders bonus stocks
Mar 01, 2011
BANK of Baroda, which last year gave sh16b to the agriculture sector, is due to offer a bonus issue, a capital markets corporate action that increases customers’ shareholding and the issuer’s capital base. Pramod Gupta, the managing director, told <b>David Mugabe</b> about the banking sector and
BANK of Baroda, which last year gave sh16b to the agriculture sector, is due to offer a bonus issue, a capital markets corporate action that increases customers’ shareholding and the issuer’s capital base. Pramod Gupta, the managing director, told David Mugabe about the banking sector and the issue.
Why is Baroda doing a bonus issue?
The Bank of Uganda wanted the minimum capital to be raised to sh10b by March 1, 2011 and up to sh25b by March 1, 2013 vis-Ã -vis sh4b of paid up capital.
There were several alternatives to raise the paid up capital but we had a good amount of reserves to retain earnings.
It was decided to raise paid up capital through retained earnings thereby issuing bonus shares to shareholders which would establish the value of the shareholder.
Will existing shareholders pay anything?
It is a bonus so you don’t pay anything buy you may pay the withholding tax on this extra shares.
From February 28, shareholders have 120 days to complete the online registration process for securities central depository accounts.
There are 600 bonus shares on offer.
So how many shares will you offer existing shareholders?
All the shareholders holding the shares as of February 20, will be entitled to bonus share of ratio of 1:5. If you have one share, you get 1.5 extra and your total shares become 2.5.
Where will the money come from?
The bonus offer will raise sh6b. The retained earnings are currently sh55b.
After the bonus issue, sh6b is taken from the retained earnings and taken to the share capital.
The retained earnings become less by sh6b and the share capital rises by sh6b.
Could you give an indication of what Baroda’s 2010 year end results will look like?
The results are going to be very good. We expect the results to be better than last year. We are always a very healthy institution. We have the minimum non- performing assets portfolio.
Some sections of the banking sector have been affected by the slowdown of the last two years. They are warning that profits may dip. Is Baroda safe?
We adapt a highly balanced approach in acquiring business in different segments so that risk cannot be denied, but the manner in which you address and mitigate the risk process is reflected in the bank. Baroda is a profit-making and not a profiteering organisation.
We want to earn profits but also contribute to the economy.
But you continuously adapt a conservative dividend payout policy; keeping it always the same. Why?
We have been paying till last year 80% dividend that means on sh10 share you get sh8, how do you say it is less.
What can you say is your market niche?
We are always in competition with ourselves. I would say give me any area of banking I will deal with it---mortgage, asset financing, traders’ loan, foreign exchange business and treasury department.
Agriculture is the backbone of this country, employing a vast number of people. What is Baroda doing to support the over 80% of the population employed in this sector?
We gave sh16b to agriculture last year. We finance one of the biggest factories in Lira (Mount Meru Millers), SCOUL, cotton ginnery and a milk plant.
But these are the big agriculture enterprises. Where is your presence in the predominant small agriculture enterprises?
Every business has got a forward and backward linkage.
I support the big institution, which has systems in place. This employs more people. There is more production.
It is a win-win situation. Nevertheless, if there is any viable agriculture project and we are convinced of the financial projections, we are willing to support.
Being one of the oldest banks, are your interest rates just as crippling and high as what is offered by the industry?
Our prime lending rates are at 18%, but we remain one of the most competitive banks in terms of interest rates. The pricing is a complicated subject and depends on several factors, which can be cost of deposits, yield on treasury bills, operation costs and capital costs.
Why is Baroda doing a bonus issue?
The Bank of Uganda wanted the minimum capital to be raised to sh10b by March 1, 2011 and up to sh25b by March 1, 2013 vis-Ã -vis sh4b of paid up capital.
There were several alternatives to raise the paid up capital but we had a good amount of reserves to retain earnings.
It was decided to raise paid up capital through retained earnings thereby issuing bonus shares to shareholders which would establish the value of the shareholder.
Will existing shareholders pay anything?
It is a bonus so you don’t pay anything buy you may pay the withholding tax on this extra shares.
From February 28, shareholders have 120 days to complete the online registration process for securities central depository accounts.
There are 600 bonus shares on offer.
So how many shares will you offer existing shareholders?
All the shareholders holding the shares as of February 20, will be entitled to bonus share of ratio of 1:5. If you have one share, you get 1.5 extra and your total shares become 2.5.
Where will the money come from?
The bonus offer will raise sh6b. The retained earnings are currently sh55b.
After the bonus issue, sh6b is taken from the retained earnings and taken to the share capital.
The retained earnings become less by sh6b and the share capital rises by sh6b.
Could you give an indication of what Baroda’s 2010 year end results will look like?
The results are going to be very good. We expect the results to be better than last year. We are always a very healthy institution. We have the minimum non- performing assets portfolio.
Some sections of the banking sector have been affected by the slowdown of the last two years. They are warning that profits may dip. Is Baroda safe?
We adapt a highly balanced approach in acquiring business in different segments so that risk cannot be denied, but the manner in which you address and mitigate the risk process is reflected in the bank. Baroda is a profit-making and not a profiteering organisation.
We want to earn profits but also contribute to the economy.
But you continuously adapt a conservative dividend payout policy; keeping it always the same. Why?
We have been paying till last year 80% dividend that means on sh10 share you get sh8, how do you say it is less.
What can you say is your market niche?
We are always in competition with ourselves. I would say give me any area of banking I will deal with it---mortgage, asset financing, traders’ loan, foreign exchange business and treasury department.
Agriculture is the backbone of this country, employing a vast number of people. What is Baroda doing to support the over 80% of the population employed in this sector?
We gave sh16b to agriculture last year. We finance one of the biggest factories in Lira (Mount Meru Millers), SCOUL, cotton ginnery and a milk plant.
But these are the big agriculture enterprises. Where is your presence in the predominant small agriculture enterprises?
Every business has got a forward and backward linkage.
I support the big institution, which has systems in place. This employs more people. There is more production.
It is a win-win situation. Nevertheless, if there is any viable agriculture project and we are convinced of the financial projections, we are willing to support.
Being one of the oldest banks, are your interest rates just as crippling and high as what is offered by the industry?
Our prime lending rates are at 18%, but we remain one of the most competitive banks in terms of interest rates. The pricing is a complicated subject and depends on several factors, which can be cost of deposits, yield on treasury bills, operation costs and capital costs.