Investec Plc’s money manager and Sanlam Ltd. have the most at risk in a looming bond default of at least 925 million rand ($94 million) after the liquidation of First Strut RF Ltd., a South African engineering company.
Investec Asset Management invested 435 million rand in a First Strut note through a company called Bacarac Trading 142 (Pty) Ltd., according to court documents filed in Pretoria on July 16 by Leslie Matuson and John Louw, who were appointed as business rescue practitioners. Sanlam Capital Markets purchased 263 million rand, Fairtree Capital (Pty) Ltd. took 131 million rand of the notes, Prudential Portfolio Managers bought 51 million rand, Rand Merchant Bank invested 50 million rand and Stanlib Asset Management acquired 22 million rand.
First Strut’s liquidation came after the murder of Chairman Jeff Wiggill last month in Soweto, southwest of Johannesburg. Wiggill’s shooting was a contract killing, the Johannesburg-based Star reported last week, citing the bail application of one of the men arrested for his killing. First Strut, which supplied the transport, mining and power industries, was placed in provisional liquidation on July 16.
Investec Asset Management, which manages 40 billion rand in corporate debt, said the First Strut bonds were part of a high-yield institutional credit strategy. “Clients can still expect a positive return for the year ahead,” the Cape Town-based money manager said in an e-mailed reply to questions today. First Strut also traded as First Tech.
FirstRand, owner of South Africa’s second-largest banking group which includes Rand Merchant Bank, loaned the engineering company 200 million rand and invested 50 million rand in the bond, Sam Moss, investor relations director of Johannesburg-based FirstRand, said in an e-mailed response to questions today.
The money invested by Fairtree Capital “was held in several credit portfolios, has been fully provided for, and within the mandates given by the underlying investors,” Paul Crawford, a portfolio manager at the Cape Town-based company, said by phone today. “The portfolios remain ahead of their performance targets.”
First Strut has 925 million rand of floating-rate notes outstanding, which RMB sold for the company, according to data compiled by Bloomberg.
While Stanlib said it couldn’t respond due to client confidentiality, Sanlam Capital Markets, a unit of South Africa’s second-biggest insurer, didn’t immediately respond to telephone or e-mailed requests for comments.
Cosira, a major unit of First Strut, applied for business rescue a week before Wiggill, 59, was found dead, according to an affidavit filed by First Strut chief executive officer Andris Bertulis. Wiggill had bullet wounds to his head and was found next to his black Bentley on June 20, the South African Press Association reported. While his wallet and mobile phone were missing, the motive for the killing was unknown, SAPA said, citing police captain, Augustinah Selepe.
The business rescue process, which tries to protect a company from creditors in the hope it can be salvaged, failed after Louw and Matuson were unable to raise as much as 80 million rand in July. Matuson met with creditors from July 11 at the Johannesburg offices of law firm Edward Nathan Sonnenbergs Inc. and asked for the money to keep First Strut afloat for one month, according to court documents.
“All secured creditors were unanimous that they were not prepared to put any further funds into the group,” according to an affidavit by Matuson, which was filed on July 16. “The financial position of the respondent and other entities is so dire that they could not even make payment of the weekly wages due July 12, given that all bank accounts were frozen.”
“The facts behind the bond default and liquidation of the First Tech Group are not yet clear, and we believe that investigations into possible irregularities and, or misrepresentations are taking place,” Bernard Fick, head of Prudential Portfolio Managers, said in an e-mailed statement today. The Cape town-based fund manager, which held First Strut’s bonds in 19 client portfolios, has written down the full value of its holdings to zero, he said.
Bacarac, the special purpose company which acts for bondholders, secured a court order on July 12 to attach all of First Strut’s assets. While there are six named investors in its bond, all of the company’s lenders are not yet known.
Absa Group Ltd., the South African bank controlled by Barclays Plc, loaned First Strut about 30 million rand, according to its investment banking head, Stephen van Coller. Absa didn’t invest in the high-yield note, he said, adding that any losses will be covered by provisions for bad debts.
Standard Bank Group Ltd., Africa’s largest lender, had a performance guarantee facility with First Strut worth 103.3 million rand, according to a document on First Strut’s website. Standard Bank declined to comment because of client confidentiality agreements, said Ross Linstrom, a spokesman for the Johannesburg-based lender.
“Nedbank is one of a number of financiers that has credit exposure to the First Strut Group of companies and is adequately provided,” Mike Brown, Nedbank Group Ltd.’s chief executive officer, said on July 24 without disclosing how much the lender may have invested or loaned First Strut.
Investec said last week its banking unit loaned about 240 million rand to First Strut. Investec didn’t immediately respond to e-mailed questions today.
Investec dropped 1.4 percent to 66.02 rand by the close in Johannesburg trading, its lowest in 11 days, while FirstRand fell 2.2 percent to 28.60 rand, its biggest fall in two weeks.