WORSE IS STILL TO COME

African Bank went into spec­tac­u­lar free fall this week. Share­hold­ers de­mand a turn­around plan in a week’s time R55m The cur­rent value of the Govern­ment Em­ployee Pen­sion Fund stake in African Bank. It was worth R1.28 bil­lion on Tues­day R0.30 The share pr

CityPress - - Business - DE­WALD VAN RENS­BURG and MOYAGABO MAAKE busi­ness@city­press.co.za

There are re­ally only two ways to save South Africa’s largest un­se­cured lender, African Bank In­vest­ments Lim­ited (Abil). Ac­cord­ing to Lib­erty Hold­ings CEO Thabo Dloti, the bank will ei­ther be bought by one of the larger banks or in­vestors will bravely stay the course af­ter suf­fer­ing hun­dreds of mil­lions of rands in losses this week.

If share­hold­ers can keep their heads, it’s pos­si­ble they can re­cover from that even­tu­ally, Dloti said af­ter the re­lease of Lib­erty’s re­sults. Lib­erty Life As­sur­ance is Abil’s sec­ond­largest share­holder.

The col­lapse of Abil’s share price this week was noth­ing short of spec­tac­u­lar af­ter it re­leased a hair-rais­ing trad­ing up­date on Wed­nes­day.

Shell-shocked share­hold­ers sold more than a third of the com­pany by Fri­day, eras­ing R9.8 bil­lion of Abil’s value.

On Tues­day evening, Abil was worth R10.3 bil­lion – with shares trad­ing at R6.88 each – a shadow of the R30 bil­lion bank it was a few years ago.

On Wed­nes­day, the bank an­nounced the res­ig­na­tion of founder and CEO Leon Kirki­nis with im­me­di­ate ef­fect, pre­dicted a loss of at least R7.6 bil­lion for this fi­nan­cial year and said it needed a min­i­mum of R8.5 bil­lion in new cap­i­tal.

On Thurs­day, Abil an­nounced that it was plac­ing its loss­mak­ing fur­ni­ture com­pany, El­ler­ines, into busi­ness res­cue – the first stop on the way to liq­ui­da­tion.

By end of trade on Fri­day, the bank was worth R450 mil­lion or 30c a share.

Abil is owed bil­lions by poor cus­tomers to whom it has lent money with no se­cu­rity, but their in­comes.

Of its R60 bil­lion loan book, spread over 2.4 mil­lion debtors, R19 bil­lion con­sists of “non­per­form­ing loans”, mean­ing that clients had missed three months of re­pay­ments.

This sit­u­a­tion is not im­prov­ing fast enough de­spite a num­ber of “de­risk­ing” ini­tia­tives.

Ba­si­cally, Abil is rein­ing in the most risky kind of lend­ing it used to do by cut­ting the max­i­mum loan amounts and the max­i­mum re­pay­ment terms it used to of­fer.

In a con­fer­ence call af­ter the shock­ing up­date on Wed­nes­day, chief fi­nan­cial of­fi­cer Nithia Nal­liah, who is now act­ing CEO, praised Kirki­nis for build­ing Abil “into the busi­ness it has been – un­til the re­cent past”.

Asked if Kirki­nis was pushed, chair­man Mutle Mo­gase replied he had of­fered to re­sign “a few times” be­fore and “given the cir­cum­stances”, the board had now ac­cepted.

Kirki­nis and other board mem­bers shared the pain this week. Kirki­nis owns about 1.47% of Abil, mean­ing his per­sonal wealth just dropped by about R140 mil­lion. His Abil shares were worth about R150 mil­lion be­fore the week’s an­nounce­ments – now they are worth about R6.6 mil­lion.

Abil’s fu­ture hinges on first get­ting rid of El­ler­ines, rais­ing a lot of money and then some­how split­ting it­self into two so that a “good bank” can be ring-fenced and sal­vaged.

Nal­liah on Wed­nes­day said the busi­ness case for un­se­cured lend­ing still ex­ists, although it would in­volve less risky lend­ing than Abil has en­gaged in.

The largest of the share­hold­ers that have just seen their in­vest­ments eva­po­rate is the Govern­ment Em­ploy­ees Pen­sion Fund, which is man­aged by the Pub­lic In­vest­ment Cor­po­ra­tion (PIC).

How­ever, as­set man­ager Coro­na­tion had in­vested more money into Abil via a num­ber of funds un­der its con­trol.

The sec­ond-largest loser is tech­ni­cally the two BEE schemes cre­ated by Abil in 2005 and 2008 (see boxes) which are now deep un­der wa­ter. Many of the ma­jor share­hold­ers had pumped mil­lions into Abil in De­cem­ber last year when it raised R5.5 bil­lion in a rights is­sue – ask­ing all ex­ist­ing share­hold­ers to buy ex­tra new shares.

How­ever, when Abil had to raise R5.5 bil­lion, it was a R14 bil­lion com­pany. Now that it needs another R8.5 bil­lion, it is a R450 mil­lion com­pany, mak­ing a suf­fi­cient in­jec­tion by ex­ist­ing share­hold­ers some­what un­likely.

The PIC has re­port­edly de­manded an ur­gent new turn­around plan within a week.

WHO TOOK A HIT

As­set man­ager Coro­na­tion’s funds own a col­lec­tive 22% of Abil. The value of that stake was about R2.2 bil­lion, but has now been re­duced to about R100 mil­lion. Funds like the Coro­na­tion Top 20 Fund and the Coro­na­tion Bal­anced Plus Fund ac­quired most of their Abil shares in the past year.

The Govern­ment Em­ploy­ees Pen­sion Fund is Abil’s largest share­holder with 12.4% at the end of last month. This stake was worth R1.28 bil­lion on Tues­day, but only R55 mil­lion on Fri­day. The fund had in­creased its share­hold­ing in Abil from 10.6% last year by buy­ing shares in the De­cem­ber rights is­sue.

Lib­erty Life owns 5.2% of Abil. The stake’s value dropped from R534 mil­lion to R23 mil­lion this week.

Mo­men­tum is another share­holder that sig­nif­i­cantly in­creased its stake in Abil in the past year. The 2.1% it owned at the begin­ning of this week was worth R200 mil­lion, the amount then fell to about R9.5 mil­lion.

BEE SHARES

African Bank’s two BEE schemes, Ey­omh­laba and Hlu­misa, are now in the red and worth roughly mi­nus R137 mil­lion.

The schemes were cre­ated in 2005 and 2008 and own 5% of Abil – down from about 9% be­fore the rights is­sue late last year di­luted them.

Their col­lec­tive shares in Abil are now worth R40 mil­lion at best, but they col­lec­tively still owe about R177 mil­lion for the shares, which were bought with debt fi­nanc­ing at prices of be­tween R10 and R6.

Roughly 14 000 black share­hold­ers own shares in the schemes, in­clud­ing sev­eral thou­sand Abil em­ploy­ees.

Ey­omh­laba and Hlu­misa have shares that are traded over the counter on spe­cial ex­changes.

These have been rel­a­tively slow to re­act to the col­lapse of the un­der­ly­ing as­set.

Since Abil’s an­nounce­ments, Ey­omh­laba shares have fallen from R4.56 to 99c.

Hlu­misa shares fell from R2.56 to R1.75 - still re­flect­ing a far higher value for Abil shares than what ac­tual Abil shares are fetch­ing in the mar­ket.

EL­LER­INES

Abil’s woes may be com­ing to a mall near you af­ter it an­nounced that it was plac­ing fur­ni­ture group El­ler­ines un­der busi­ness res­cue.

The group con­sists of 1 025 fur­ni­ture stores that em­ploy 7 790 peo­ple.

These fall un­der a num­ber of ubiq­ui­tous South African brands – El­ler­ines, Fur­ni­ture City, Dial-a-Bed, Wetherlys, Beares and Geen & Richards.

Abil bought El­ler­ines in 2008 for R9.2 bil­lion. The premise was that peo­ple buy­ing fur­ni­ture on terms would get that credit from Abil.

In this week’s up­date, Abil an­nounced that its re­tail divi­sion, which is es­sen­tially El­ler­ines, will suf­fer losses of “at least” R2.9 bil­lion” in its cur­rent fi­nan­cial year – far worse than the loss of R328 mil­lion a year ear­lier.

PHOTO: REUTERS

TEE­TER­ING ON THE EDGE A man walks past a branch of African Bank in Cape Town. In­vestors fled African Bank In­vest­ments Lim­ited this week as South Africa’s largest un­se­cured lender faced a mas­sive hole from a flood of un­se­cured loans gone bad and its fur­ni­ture re­tail busi­ness ap­plied for cred­i­tor pro­tec­tion. The bank shocked the mar­ket on Wed­nes­day when it said it needed to raise R8.5 bil­lion in new cap­i­tal af­ter warn­ing of a mas­sive an­nual loss

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