African Bank Investments Ltd. (ABL), South Africa’s largest provider of loans not backed by assets, gained the most in 19 years in Johannesburg after starting talks to sell unprofitable furniture retail unit Ellerine Holdings Ltd.
The shares climbed 17 percent, the most since April 1995, to 7.90 rand. Abil, as the bank is known, has dropped 34 percent this year, making it the worst-performing bank stock in South Africa.
Abil said today it entered talks on the potential sale of Ellerine and its subsidiaries, the successful conclusion of which may affect the lender’s share price, according to a statement from the company. The bank, which bought the unit in 2008, didn’t give further details.
Abil raised 5.5 billion rand ($510 million) in a December rights issue as unemployment at 25 percent and a shrinking economy left South African consumers struggling to repay debt. Moody’s Investors Service cut the lender’s foreign rating a step to Ba1, one level below investment grade, on May 29 after the company posted a record fiscal first-half loss, igniting speculation the company may need to seek further funds.
“If the bank is able to sell Ellerine then it potentially negates the need for a rights issue,” Simon Fillmore, chief executive officer of Independent Securities, said today by phone from Johannesburg. “The market should be exceptionally excited. Abil will want to sell as quickly as possible -- it will probably be a fire sale.”
Debt holders won’t want to roll over their bond holdings unless African Bank raises additional capital, according to Kokkie Kooyman, head of Cape Town-based Sanlam Global Investments, which has $900 million under management.
While the bank has declined to comment on whether or not it will commence a second rights issue, Abil’s profit will improve from 2015 after tightening lending standards, CEO Leon Kirkinis said in a May 30 interview.
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