(Business in Cameroon) - Microfinance institution, La Régionale promises quick returns to investors who will subscribe to its ongoing IPO on the BVMAC. During a recent press briefing, Charles Rollin Ombang Ekath (CEO of La Régionale) explained that within three months, the said subscribers could get additional shares through incorporation of shares premium.
"We have already announced our intention to increase our capital to XAF15 billion after this operation. Also, within three months, those who will have subscribed may receive additional shares, through incorporation of shares premium," he said.
The incorporation of shares premium is not a new capital increase practice. It helps remunerate shareholders while boosting the company’s equity. However, in the present case, as the CEO provided no details about this additional share distribution, investors (smaller ones especially) will be attentive to know if they are eligible.
La Régionale believes that once it becomes a universal bank, it would be able to offer additional services beyond what a simple microfinance institution can do and therefore broaden its income base. So, as both the microfinance institution’s managers and Financia Capital (the institution arranging the IPO operation) claim, demands for La Régionale’s shares will grow, boosting their value.
With this IPO, La Régionale now has numerous incentives including a reduced corporate tax base and access to non-taxable investments such as government treasury bills and the foreign exchange market. All those incentives will improve its net margin.
But it may be too soon to tell if the impacts of its conversion into a universal bank will only improve the company’s margins. Indeed, becoming a bank will also entail additional costs. This is the case for employee compensation, which will have to be aligned with the collective agreement that sets salaries that are higher for bank employees than the staff of microfinance institutions.
Also, there are other investment costs to be borne, namely investments in technological equipment to bring the soon-to-be bank to standards. Other factors include the rising cost of risk in the Cameroonian banking sector and tough competition for low-risk customers.
Finally, La Régionale will also have to be precise in its dividend distribution policy. Its CEO did admit that the policy is quite restrictive since till now, it has been a precautionary policy with 50% of net profit distributed.
With the new banking requirements, this rate could be revised downwards, in order to always maintain an appropriate level of equity. So, only the financial institution’s future performance can let investors have a better appreciation of their investments.