African Bank Downgrade Doesn’t Trigger Redemption, CFO SaysJaco Visser
African Bank Investments Ltd., the South African unsecured lender which was downgraded to junk last week, said there are no foreign or local holders of its debt that could ask for early repayment of its bonds.
“That is because there are no covenants dealing with a downgrade and therefore there is no default,” Chief Financial Officer Nithia Nalliah said in an e-mailed statement yesterday. “Debt funders are therefore only able to redeem on the specified bond maturation date.”
Foreign investors hold 27 percent of the lender’s liabilities, he said. Moody’s Investors Service on May 29 downgraded the bank’s foreign rating to Ba1, one level below investment grade, citing the deterioration of the company’s loan book. The local rating of Abil, as the lender is known, was cut one level to A3, which is still investment grade. It has 7.1 billion rand ($660 million) in bonds up for repayment through the end of next year.
African Bank lost 32 percent of its market value this year as bad loans more than doubled to 2.5 billion rand in the fiscal first-half to March, prompting it to cancel its dividend. The lender sold shares to investors in December to bolster its capital as South African unemployment of 25 percent and a shrinking economy left consumers struggling to pay debt.
Yields on dollar-denominated Abil bonds due in February 2017 climbed 159 basis points, or 1.59 percentage point, since the downgrade on May 29 to 7.70 percent yesterday.