YOU’VE LOST MONEY, GET OVER IT
There has been a lot of chatter that African Bank shareholders are not yet totally down and out. While this is true, don’t expect to profit from the collapse of the bank. Simply put, if shares in a company you own go bust, you cannot expect to make a profit from that fact. However, it seems certain that the ‘good’ bank side of African Bank will return to the market, with existing shareholders being able to partake in the listing. That means that they will be able to buy new ‘good’ bank shares. In other words, they will have to put more money in.
As a simple calculation: African Bank has a negative net asset value (hence it went bust), but let’s say with the cash raised from listing it ends up with a R10bn book value (net asset value). Assuming there are 1.5bn shares (current shares in issue from African Bank), they would likely be issued at a price of say R6.67. In other words, shareholders would have to pay for their new shares and this would result in a price-to-book value of 1 (R10bn market cap underpinned by R10bn net asset value). A price to book of 1 times is cheap, except of course shareholders have actually already paid for their shares and if they now were to pay an average of R6.67 (and that number is on the low side, the real number is likely double that), then the effective price-to-book value is 2 times, and that makes the ‘good’ bank expensive. The bottom line is that current shareholders have lost money.