African Bank Investment Ltd.’s subordinated debt holders, who are at risk of losing all their money after the lender’s 2014 collapse, failed to reach agreement with the government over changes to bank laws they say are prejudicial.
“African Bank subordinated debt investors must take responsibility for the losses,” Ismail Momoniat, a deputy director general of South Africa’s National Treasury, told lawmakers in Cape Town Tuesday. “What we’ve tried to show is, when it comes to a bank, you have got to go in with your eyes wide open. Not one iota of the responsibility should sit with us.”
The National Treasury is seeking the passage of amended banking laws, drafted after African Bank’s August collapse, to give administrators of failed lenders the right to sell bank assets and liabilities and change capital structures without investors’ consent. While senior debt holders, who will take a 10 percent loss on their investments, have agreed to the changes, junior bond holders say the amendments undermine their contractual rights and may be unconstitutional.
“The issue of constitutionality will always come up from people who are opposed to a bill,” Momoniat said. “Internationally, what we are doing is in line with what is happening in the most-advanced economies.”
A committee representing some holders of about 4.4 billion rand ($362 million) of second-tier debt, including Investec Asset Management and Prudential Investment Managers, has twice made submissions in parliament and held closed meetings with officials without finding a compromise.
If the proposed changes are made to the Banks Act, African Bank may be able to make a formal offer to its creditors in May, obtain a new banking license and apply for an initial public offering. The IPO, in early 2016, may give investors a way to recoup their money.
“We will finalize this bill very shortly,” said Yunus Carrim, chairman of Parliament’s finance committee. “There is no need for endless discussions.”
Francois Groepe, a central bank deputy governor, is overseeing talks with debt holders with a view to reaching agreement on how African Bank will be restructured, Momoniat said.
“The bill itself and the other process can run in parallel,” he told reporters.
“From what I understand, they are close to agreement. Like all negotiations, people take them to the wire. The bill just gives the curator further options. The curator has got to be mindful of all the various interests. If you ask me, it’s ultimately about whether the subordinated debtors get some money or nothing at all.”