Tags: African Bank Investments | loss | trade | loan

No End in Sight for African Bank as Billions Erased in Trade

Thursday, 07 August 2014 08:02 AM

African Bank Investments Ltd., South Africa’s largest unsecured loan provider, lost about 90 percent of its market value after forecasting a record loss and saying it needs to tap investors for $791 million of fresh capital.

The shares plummeted 87 percent to 88 cents as of 12:29 p.m. in Johannesburg, exacerbating a 61 percent slump Wednesday. Coronation Fund Managers Ltd., the bank’s biggest shareholder, fell as much as 6.5 percent to lowest intraday level in five months, while Capitec Bank Holdings Ltd. its largest competitor in South Africa, declined as much as 2.3 percent.

“There’s panic in the market, but for good reason,” Jean Pierre Verster of 36ONE Asset Management, which manages the equivalent of $1.1 billion, said by phone. “Abil in its current form is unsustainable and it’s not unrealistic to expect significant job losses.”

Leon Kirkinis, founder and chief executive officer of Abil for the past 23 years, resigned after the company said it needs to raise as much as 8.5 billion rand ($791 million) to survive. That’s more than six times the lender’s current market value. Abil also said it expected to post a record 7.6 billion-rand loss for the full year and will seek to split its “good” assets from the “bad” to try and contain the losses.

Bank Talks

The South African Reserve Bank is in talks with Abil, spokesman Hlengani Mathebula said by phone from Pretoria, without giving more details. There have been “no indications that other South African banks have been affected negatively by Abil’s trading update,” it said in a statement.

Abil started to falter in March last year after South Africa’s National Credit Regulator said it had been involved in reckless lending. That forced the lender to abandon plans to raise $300 million in foreign debt markets. Bad debt levels rose more than the bank expected as clients struggled to repay loans amid accelerating inflation and rising unemployment.

“We have repeatedly negatively surprised the market and ourselves,” Nithia Nalliah, acting chief executive officer, said in a conference call from Johannesburg.

Much of Abil’s troubles stems from the purchase of furniture retailer Ellerine Holdings in 2008 for 9.2 billion rand, which was intended to help it find new clients and boost lending. After a series of writedowns and losses, which Abil had to fund by selling debt or equity because it doesn’t take deposits, it plans to sell the unit.

‘Chickens Roosting’

“I have no idea whether they’ll survive or not, what can I can tell you is that I won’t be buying any shares,” Gavin Wood, chief investment officer at Kagiso Asset Management, said by phone from Cape Town. “They’ve been particularly risk-seeking in the last three years, verging on reckless, and I think the chickens are coming home to roost.”

Abil’s origins can be linked to the start of Theta Securities in South Africa in 1993. By 1999, following the acquisition of a loan book and insurance operations and a spike in bad debts, the Theta group was renamed African Bank.

African Bank is going to struggle to rescue its business with the share price plunge showing “the market doesn’t have confidence in its ability to raise capital,” Piet Viljoen, founder of Regarding Capital Management, said in a phone interview from Cape Town today. There is no liquidity in African Bank’s rand bonds, he said.

Yields on African Bank’s Swiss franc bonds due July 2015 jumped to a record, climbing 457 basis points to 176 percent. Abil has about 1 billion rand of debt maturing in September and almost 10 billion rand next year.

There are now only two outcomes for Abil, RMB Morgan Stanley analyst Greg Saffy said in an e-mailed note. “The bank could be recapitalized and restructured, or funders and equity providers do not follow their rights and the equity value falls to zero.”

African Bank declined to comment when contacted by phone.

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African Bank Investments Ltd., South Africa's largest unsecured loan provider, lost about 90 percent of its market value after forecasting a record loss and saying it needs to tap investors for $791 million of fresh capital.
African Bank Investments, loss, trade, loan
Thursday, 07 August 2014 08:02 AM
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