Abil earmarks 2017 as year new business will return to profit
AFRICAN Bank Investments Limited (Abil), the unsecured lender that collapsed last year amid record losses, said yesterday the business created out of the bank’s viable assets would make a profit in 2017.
The newly created banking group would start operating in February and was expected to post a loss for the fiscal full year to September next year of R336 million, Tom Winterboer, the lender’s administrator, said. That would be followed by a profit of R542m in 2017. “This is the base case. We’re quite excited by the numbers.”
Abil failed in August 2014 as bad debts rose and funding dried up. The Reserve Bank stepped in with a rescue plan that has put senior bondholders in line to recoup 90 percent of their investment and left subordinated debt holders facing a 62.5 percent loss.
Shareholders in the bank, which included government pension fund administrator the Public Investment Corporation (PIC), Coronation Fund Managers and Allan Gray, also a fund manager, may still lose everything.
Abil, which was the country’s biggest provider of unsecured credit, also released a 129-page information memorandum yesterday detailing the offer to creditors.
If its plan is approved, which African Bank said was likely following discussions with large investors, and signed off on by the minister of finance, its operational assets would be transferred into a so-called good bank that would start on February 1.
An initial public offering (IPO) can probably only be planned after the new entity has a track record of about three years, according to Winterboer. “On listing, if there’s an over-subscription, previous shareholders will get preferential treatment,” which won’t include preferential pricing, he said. “It’s unfortunate.”
Until the IPO, the central bank would be a 50 percent shareholder in African Bank and the PIC would hold 25 percent, with the rest of the shares taken up by South African banks, Winterboer said.
“We wouldn’t expect SARB’s (Reserve Bank) support to cost taxpayers money because the central bank’s lending is being done on a commercial basis. The intention would be with a listing for SARB to sell or it could sell to another party.”
Cutting costs
To bolster its business model, African Bank will reduce the size and the term of loans, while cutting costs and narrowing the write-off period on bad debts to six months from 10.
The new bank will have an opening cash balance of R20.5 billion and should not need to approach debt markets for financing until late 2018, according to the lender. The bank planned to publish results in December for the year to September 2015, he said.
Yesterday’s information memorandum has been delayed since May and the start of the new bank was originally pegged for next month. The June proposal by the Department of Trade and Industry to cut the maximum interest rate on unsecured credit was partly to blame for the missed deadlines, according to David Gard, a member of Winterboer’s team.
“When the interest rate proposals came out we were quite concerned,” Winterboer said, having indicated that the changes might mean an 8 percent reduction in the maximum interest for unsecured loans. “We will lend less, but write-offs will also be lower.”
To rescue the lender and create the good bank, Winterboer and his team have had to get banking laws changed, appoint new directors, fire some staff, negotiate with investors, produce financial results and arrange a sale of the lender’s Standard General Insurance. – Bloomberg