South Africa Central Bank Planning African Bank Measures – Bloomberg

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    South Africa’s Reserve Bank plans to
    detail measures for African Bank Investments Ltd. (ABL), the
    Johannesburg-lender whose stock lost most of its value after
    saying it needs 8.5 billion rand ($797 million) of new funds.

    The Reserve Bank will hold a press conference at 4 p.m. in
    Pretoria to “announce measures to be taken with regard to
    African Bank Ltd.,” according to a statement today on the
    Reserve Bank’s website, which didn’t give additional details.

    African Bank’s situation is critical after the bank said
    Aug. 6 that Chief Executive Officer and founder Leon Kirkinis
    resigned, losses will be at a record this year and it would need
    to tap investors for a fresh capital injection less than a year
    after raising 5.48 billion rand in a December rights issue.

    Part of African Bank’s troubles stem from its 9.2 billion
    rand acquisition of furniture retailer Ellerine Holdings Ltd. in
    2008, which has prompted losses and writedowns after sales
    dropped. Abil, as African Bank is known, doesn’t take deposits
    and typically disburses small loans not backed by assets to low-income earners. Many customers are struggling to keep up with
    repayments amid rising unemployment and inflation.

    “Abil’s losses are in large part due to its unique
    business model,” the Pretoria-based central bank said in an
    Aug. 6 statement on its website, adding that it’s the country’s
    only lender operating a furniture chain. “Credit losses and the
    drain on its resources have resulted, among others, from the
    inability of its furniture chain to operate profitably.”

    8,000 Jobs

    Ellerine, with more than 1,000 stores and almost 8,000
    staff, said on Aug. 7 that it was insolvent and went into
    business rescue, similar to the U.S.’s Chapter 11, to seek a
    return to solvency and save jobs after Abil stopped funding it.

    The stock dropped to 31 cents on Aug. 8, from 6.88 rand on
    Aug. 5, the day before a trading update revealed that the bank
    expects a record 7.6 billion-rand loss this year and that
    Kirkinis is stepping down after 23 years. Abil also said it’s
    seeking to split its assets into a good and bad bank.

    “We think the SARB would be willing to provide liquidity
    to such a good bank,” Peter Attard Montalto, emerging-market
    analyst at Nomura International Plc. in London, wrote in a note
    to investors on Aug. 8. “There are serious questions to be
    raised though why the National Credit Regulator, the Financial
    Services Board and, yes, even SARB, did not sound enough alarm
    bells into 2012 as the bad loan book was being built up.”

    Mistakes Made

    The last time a bank failed in South Africa was 12 years
    ago, when Saambou Holdings Ltd. and Unifer Holdings Ltd.
    collapsed in 2002 and Abil bought Saambou’s loan book.

    “A mistake was made when the board rejected the CEO’s
    resignation three months ago,” Kokkie Kooyman, head of Cape
    Town-based Sanlam Global Investments, with $900 million under
    management, said on Aug. 7. “The time they had to get a new
    rights issue in place with commitments from shareholders and put
    a new CEO in place wasn’t used. They spooked the market.”

    Coronation Fund Managers Ltd. (CML), the Public Investment Corp.
    and Stanlib Ltd. are Abil’s three largest shareholders,
    according to data compiled by Bloomberg. The share plunge shaved
    2.17 billion rand off the value of Coronation’s 22 percent
    stake. Abil also owes debt holders more than 33.5 billion rand
    in bonds and interest.

    Abil in December raised 5.48 billion rand in a rights issue
    which the bank said was 64 percent oversubscribed. The offer was
    underwritten by Goldman Sachs Group Inc.

    To contact the reporter on this story:
    Renee Bonorchis in Johannesburg at
    rbonorchis@bloomberg.net

    To contact the editors responsible for this story:
    Dale Crofts at
    dcrofts@bloomberg.net
    James Kraus

    South Africa Central Bank Planning African Bank Measures – Bloomberg

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