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African Bank Bonds Crushed Signal Finance Options Fading

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Aug. 8 (Bloomberg) -- Bond investors in African Bank Investments Ltd., who sent prices down by more than 50 percent this week, are joining shareholders in signaling the South African provider of unsecured loans is running out of options.

The price on African Bank’s $350 million of bonds due February 2017 slumped to 45 percent of face value yesterday, from 99 on Aug. 1, according to data compiled by Bloomberg. That drove the yield to 47.49 percent, surging more than 29 percentage points the past two days. The extra yield investors demand to hold the bonds rather than equivalent U.S. Treasuries widened by 25 percentage points in the period.

With the stock sinking 95 percent since Abil, as it’s known, said two days ago it needs to raise as much as 8.5 billion rand ($792 million) to survive, investors including Piet Viljoen at Regarding Capital Management said the lender will struggle to raise the cash, more than eight times its market value. Abil’s second-biggest shareholder said yesterday it won’t pour good money after bad unless there’s “a better plan.”

“A successful capital-raising would give bondholders a lot of comfort,” Viljoen, who oversees the equivalent of about $500 million including Abil bonds, said by phone from Cape Town yesterday. “The market doesn’t seem to have confidence in their ability to raise capital.”

No Liquidity

Abil declined to comment when contacted by phone yesterday.

Yields on Abil’s 652 million rand of bonds due October 2016 have been unchanged at 4.16 percent since July 21. That indicates there have been little trading and may not reflect the true price, said Bernard Fick, chief executive officer of Prudential Portfolio Managers, which oversees 125 billion rand, including the lender’s bonds.

“There is no liquidity in the market,” Fick said by phone from Cape Town yesterday. “Considering the movements in the foreign bonds, it would be fair to say that local prices need to be somewhat impaired.”

Abil has 28 billion rand of debt outstanding, including about 14.4 billion rand in Swiss francs and dollars. Leon Kirkinis, the founder of the bank and its CEO for 23 years, resigned on Aug. 6 after the company said it expected to post a 7.6 billion-rand annual loss and will seek to split “good” assets from “bad.” Abil said yesterday in a statement that it would no longer fund Ellerines Holdings Ltd., its money-losing furniture unit.

Serious Plan

“This is the first step in the right direction,” Luca Carrozzo, a money manager with Banque CIC Suisse, who holds Abil’s Swiss franc debt after selling some recently, said in an e-mail yesterday. “If they are able to show a serious business plan to the investors we think it’s possible that African Bank will succeed with their capital raising.”

The Public Investment Corp., Abil’s biggest shareholder after Coronation Fund Managers Ltd., said it remains unconvinced. Abil’s shares dropped 38 percent to 31 cents by he close in Johannesburg after plummeting 81 percent yesterday. Yields on the February 2017 notes fell for the first time in six days, declining 594 basis points to 41.54 percent. The rand gained 0.7 percent to 10.6934 per dollar.

“If we rescue it will depend on management’s plan or we’ll be throwing good money after bad,” Chief Investment Officer Dan Matjila said by phone from Pretoria yesterday. “We want a better plan in changing the business model into a more fully-fledged bank with reasonable other sources of revenue and a stronger board.”

The PIC oversees 1.4 trillion rand of government employees’ pension funds and holds 12.4 percent of the bank, according to data compiled by Bloomberg. Abil has about a week to finalize a turnaround plan, Johannesburg-based Business Day reported today, citing Matjila.

The South African Reserve Bank is in talks with Abil, spokesman Hlengani Mathebula said by phone from Pretoria yesterday, without giving details.

“There is no market for these bonds, so even if you wanted to sell, you couldn’t,” Bronwyn Blood, who helps manage about 20 billion rand in fixed-income assets, including Abil securities, at Cadiz Asset Management Ltd. in Cape Town, said yesterday. “For now, it’s a case of sit tight and don’t panic.”

To contact the reporters on this story: Robert Brand in Cape Town at rbrand9@bloomberg.net; Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net

To contact the editors responsible for this story: Vernon Wessels at vwessels@bloomberg.net Emily Bowers