HORROR SHOW
Leon Kirkinis’ financial fright night
AFRICAN BANK management has effectively wiped out R34.2-billion of the company’s value in the past 17 months, enough to buy a small Mediterranean island, or its rival Capitec, with its R25.6-billion market cap — and still have some change.
Abil’s share price has slumped 70% since January last year due to its shocking performance. On Monday, the share price recovered some ground, rising 6% despite announcing a R4.4-billion loss for its half-year.
However, the unsecured lender is expected to report more losses when it publishes full-year financial results later this year, according to a Goldman Sachs report.
This has left some shareholders fed up. Old Mutual’s senior portfolio manager, Arthur Karas, said: “I tell you, they [African Bank’s management] are on thin ice. I can’t imagine that management is feeling comfortable in their position.”
Shareholders such as the Eskom and Sentinel pension funds have previously questioned whether the business model was working.
Others kept mum: Stanlib would not comment on the bank’s management and the company’s performance until “certain things have been done . . . and we’ve done what we need to do to look after our clients’ interests”.
Coronation Fund Managers said “now is not a good time to chat”.
On Monday, Abil chief executive Leon Kirkinis, for the first time since the group started reporting such dismal numbers, accepted responsibility instead of trying to shift blame to the weak economy.
However, the 6% surge in its share price on the day it announced the loss suggested the market had expected a far worse performance.
Surprisingly, some shareholders increased their holdings in the group. Coronation Fund Managers upped its stake to 22% from 6%, the Public Investment Corporation (PIC) took its shareholding to 12.5% from 11.9% and Stanlib Asset Management now has a 7.8% holding from 7.4%.
Abil chief financial officer Nithia Nalliah denied that some of the shareholders were protecting the group. “They see value,” he said.
But the apparent confidence of some shareholders may be prema- ture. The Goldman Sachs report said that despite the R2.5-billion increase in general provisions, uncovered nonperforming loans were expected to increase to R3.5-billion.
Yet Kirkinis seems convinced that this time he is ahead of the curve. The bank may be forced to do another rights issue if it fails to sell unprofitable furniture retail business, Ellerines. But management is still adamant it can palm it off, although there are no buyers in sight.
Some analysts say Abil should close Ellerines down as it may never return to profitability.
Nalliah said none of the interested parties that approached management about purchasing Ellerines made firm offers.
This should be worrying because Ellerines, which employs more people than Abil, is bleeding the bank dry. “The sooner we can get rid of that [Ellerines] the better, [then] we can reserve capital,” Nalliah said.
Nalliah said a rights issue offer was the last option if management failed
The sooner we can get rid of Ellerines the better
to sell Ellerines or cut back on operational costs.
The Goldman Sachs report also warned the bank’s reliance on wholesale funding made it particularly sensitive to the commitment of lenders.
The report said that any potential negative credit rating actions could lead to funding issues or increased costs of funding.
Rating agency Moody’s , which still has a negative outlook on the bank, said Abil’s ratings could be downgraded if asset-quality deterioration led to further erosion in profitability.
Negative pressure would also be exerted on the ratings if either the bank’s asset quality or funding profile were to weaken. It said the latter could be a consequence of higher funding costs, a shortening in the maturity profile of its funding, or a rise in its funding concentrations.
Despite the company’s woes, Kirkinis said he was still the right person to turn the business around. “The board has confidence in my ability.
“If shareholders have issues with me, they should vote,” Kirkinis said.