IFA Report on AiBank acquisition

Click on, or paste the following link into your web browser, to view the full announcement.

http://www.rns-pdf.londonstockexchange.com/rns/4335V_1-2021-4-14.pdf

Indicative form of fair market value assessment

1. Brief about the Bank

● Establishment & Shareholders: aiBank was established in 1974 as an investment and commercial bank. aiBank was previously known as The Federal Arab Bank for Development and Investment. As at the valuation date, the bank's shareholders were National Investment Bank("NIB") (92.2%) and Federation of Arab Republics (7.8%)

● Capital & Minimum Requirement: aiBank paid up capital amounted to EGP 1.84B as at 30 Jun 2020. A subordinated loan from National Investment Bank was approved to be transferred to capital resulting in an increase in paid up capital to EGP 1.98B.

● Headcount: was 956 employees as at the valuation date.

● Branches & Offering: The bank currently operates through 31 branches (owned and leased), with two branches offering Islamic products; one based in Cairo and the other in Alexandria. The headquarters is currently located in downtown Cairo. However, it is planned to move to the new administrative capital after its construction completion which is currently in progress.

● Historical financial information of the bank showing:

aiBank has incurred net losses in FY18 and FY19 due to (1) a low and fluctuating net interest margin, coupled with (2) an increase in impairment of credit loss, (3) a one-off legal provision formed in 2019 as well as (4) a reduction in net fees and commission income.

The decline in interest income & interest expense starting 2019 is in line with the reduction in Central Bank of Egypt Corridor, latest being 300 bps in Mar 2020.

OPEX comprised mainly of salaries and wages. In early 2019, a salary adjustment take place by changing the base exchange rates of salaries and wages in order to be closer to market norms.

Historical balance sheet highlights

Given the bank's CAR limitation to extend loans, management maintained an average loan to deposit ratio of c. 30% during the historical period, while 70% of the bank's funds were directed to different investments including T-Bills and Bonds, as well as deposits with other banks. The increase in loans in YTD-20 was driven by the increase in capital through equity injection from NIB coupled with a shareholder's loan that was transferred to capital.

Customer deposits have been the main source of funds for the bank over the historical period. As per discussions with management, aiBank has provided competitive rates historically which allowed the bank to increase its deposits base to EGP 38B by 31 Dec 20.

2. Independent Financial Advisor Report:

We were hired by the EFG Hermes Holding S.A.E. and Arab Investment Bank (the "Clients") to conduct this study in connection with the potential subscription for shares issued by aiBank (the "Purpose"). 

The principles and assumptions presented in this study are based on data and information provided to us by the Bank's Management.

It is worth noting that the future performance of the bank may vary from the estimates provided by the Bank's management as events and circumstances frequently do not occur as expected. We take no responsibility for the achievement of predicted results.

The report includes identifying the sources of information and the methodology used in the valuation.

This report has been prepared for the Board of Directors for guidance purposes only. Any investment decision remains solely a matter for the Board to assess based on the information, including the IFA Report, made available to them. 

3. Valuation Methodologies:

We have used the Discounted Cash Flows (DCF methodology) based on the business plan provided by the target's management at an appropriate discount rate and applying appropriate adjustments.

For the market approach we have relied on all listed banks in the Egyptian stock exchange and have only excluded non-actively traded banks, we have also considered most recent market transactions.

Based on the above, the DCF approach resulted in a fair value range from EGP 1.1 billion million to EGP 1.2 billion, while the market approach resulted in a valuation range from EGP 0.8 billion to EGP 1.4 billion.

4. Fair Value of the share

The fair market value of the equity is estimated to be in the range of EGP 0.9 billion and EGP 1.2 billion with the estimated value being EGP 1.1 billion.