African Bank Investments Ltd. (ABL)’s largest shareholder, Coronation Fund Managers Ltd. (CML), apologized to investors and said it had learned a “sobering lesson” after its stake in the failed lender was wiped out.
South Africa’s central bank put Abil, as it’s known, into curatorship, akin to Chapter 11 bankruptcy, on Aug. 10 after the lender said it needed at least 8.5 billion rand ($800 million) of capital to survive. Abil’s shares were suspended on Aug. 11 after the South African Reserve Bank split the firm into a “good” bank and a “bad” book, and arranged for institutions to underwrite a 10 billion-rand capital increase.
Coronation held about 22 percent of Abil before the company released a trading update on Aug. 6 that precipitated a drop of more than 90 percent in its share price, according to data compiled by Bloomberg. The Cape Town-based fund manager then cut its holdings to less than 9 percent by Aug. 8, it said.
“Losses have been incurred, for which we apologize,” Coronation, which manages the equivalent of about $54 billion, said in a statement. “This has been a humbling experience for us. We do not like to make mistakes.”
Still, African Bank’s meltdown didn’t have a significant impact on the performance of any of its funds, Coronation said, without disclosing how much it lost in rand terms.
Top 20 Fund
African Bank accounted for 1.4 percent of Coronation’s Top 20 fund, which lost 0.2 percent from Aug. 1 to Aug. 11 compared with a median loss of 0.1 percent by competitors, according to the money manager, which cited Aug. 12 data from Morningstar Inc.
Coronation’s Balanced Plus fund, where African Bank accounted for 0.53 percent of assets before Aug. 6, lost 0.6 percent during the period compared with 0.7 percent for competitors, the money manager said.
African Bank’s long-term deposit and senior unsecured debt rating was lowered to Caa2 from Ba1 by Moody’s Investors Service yesterday, which cited “expected losses” for senior bondholders and wholesale depositors. Another downgrade may follow because of the risk of higher-than-anticipated losses.
“Equity holders, preference shareholders and subordinated debt holders will lose all their capital,” Coronation said. Central bank governor Gill Marcus said Aug. 10 that Abil’s shareholders would “take the hit.”
Coronation’s shares, which had gained 24 percent this year before Abil’s Aug. 6 statement, fell 6 percent to 93 rand as the lender collapsed last week. The stock has recovered some of its losses, gaining 0.3 percent to 97 rand by the close in Johannesburg trading today. The shares were at 99.11 rand on Aug. 5.
Stanlib Ltd., Abil’s third-biggest shareholder before the collapse, said today that money-market investors’ returns will be cut by as much as 0.17 percent. Stanlib has 1 percent equity exposure to Abil and holds senior and subordinated debt, the fund manager said. The Public Investment Corp., Abil’s second-largest shareholder, hasn’t disclosed losses.
While Coronation was selling after Abil’s trading update last week, Allan Gray Pty Ltd., the 10th largest shareholder, according to data compiled by Bloomberg, increased its holding to 6.88 percent from below 5 percent.
“We marginally increased our position in the ordinary shares at prices around 50 cents per share,” the Cape Town-based fund manager said in a statement on its website. “The additional amount invested was an immaterial percentage of fund assets, less than 0.01 percent.”
Shareholders may not be completely wiped out, according to Tom Winterboer, who was appointed caretaker of Abil.
“We need to establish values and what goes into the good bank,” Winterboer said by phone from Johannesburg today. “All is not necessarily lost. People have lost a lot of money, and one is sympathetic.”
Abil’s debt payments of about 1 billion rand due September have been suspended, he said. The team working inside the bank are trying to gather enough information to make financial decisions and update capital markets further, he said.
Fifteen months before African Bank’s rescue this week, David Stemerman told his fellow U.S. hedge fund managers to bet against the South African lender.
Stemerman, founder of $3 billion Conatus Capital Management LP, told a New York hedge-fund conference that African Bank had become vulnerable after aggressively building up its unsecured consumer lending investments and becoming too reliant on financing from the bond market.
To contact the reporter on this story: Renee Bonorchis in Johannesburg at email@example.com