‘Bad’ bank pays back loan two years early

RESIDUAL Debt Services (RDSL), the “bad” portion hewn from African Bank, which recently came out of curatorship, has paid back a Reserve Bank loan two years earlier than anticipated, freeing up cash to build up insurance against claims from unhappy investors.

The Reserve Bank lent R3.3bn to the old African Bank to help it collect on its soured loan book after the bank collapsed and former governor Gill Marcus placed it into curatorship in 2014.

After African Bank came out of curatorship in April, its soured loans were split off into RDSL, which made such good collections that it was able to raise R1.8bn for the Reserve Bank loan by July.

Its gross monthly take ranged between R350m and R400m, RDSL curator Tom Winterboer said on Wednesday.

RDSL had fully paid up its debt to the Reserve Bank and would focus on building up an indemnity reserve, working in tandem with a R3bn indemnity facility provided by the Reserve Bank. The facility would stay in place for eight years. “An indemnity reserve will be set up and receive further cash from RDSL collections and will service any claims from the new African Bank to the extent that the relevant cause of action arose before the transaction effective date on 4 April 2016,” Winterboer said.

This would cover the new African Bank from successful claims made against it. The indemnity facility was originally said to amount to R7bn, provided by the Treasury to rescue African Bank, but was reduced to R5bn in Winterboer’s information memorandum to investors before the exchange of their bonds in the old African Bank for the new bank plus cash. This was further cut to R3bn in an offer memorandum.

“The indemnity facility will only be drawn upon should there be insufficient funds in the indemnity reserve. After the eight-year term has ended, and should there be any remaining funds in the reserve, these funds will be distributed to creditors.”

RDSL would still collect on the bad loan book until it became uneconomical to do so. It currently had investors who held residual securities, or stubs, in the business. “RDSL will consider potential measures that, in the curator’s belief, maximise the return to the stub holders,” said Winterboer.

“Ultimately the entity is expected to be run down.”

RDSL would now focus on building up an indemnity reserve