African Bank’s Ellerines Unit Seeks Rescue After Funding SeveredRenee Bonorchis
African Bank Investments Ltd., South Africa’s largest unsecured loan provider, said its unprofitable furniture retail unit is applying to be rescued after the lender cut off its funding because of losses.
“The board of Ellerine Furnishers advised Abil that it has commenced with voluntary business rescue proceedings,” Johannesburg-based African Bank said in a statement today. “As a consequence of the financial performance of EF a decision has been taken that no further funding would be provided.”
African Bank is reeling from a 93 percent stock decline in the past two days after the lender’s chief executive officer resigned, losses would be a record this year and it would need to tap investors for cash for a second time in a year.
Abil bought Ellerines in 2008 for 9.2 billion rand ($859 million), a move intended to help the Johannesburg-based bank find clients and boost lending. After writedowns and losses, which Abil funded by debt or equity sales because it doesn’t take deposits, it tried unsuccessfully to sell the unit.
Leon Kirkinis, founder and CEO of Abil for the past 23 years, resigned yesterday after the company said it needs to raise as much as 8.5 billion rand to survive. That’s more than nine times the lender’s current market value. Abil also said it expects a record 7.6 billion-rand loss for the full year and will seek to split its “good” assets from the “bad” to try and contain losses.
“We haven’t been able to get Ellerine right,” Nithia Nalliah, acting CEO of Abil, said in a conference call from Johannesburg yesterday. “It’s almost impossible for a furniture retailer to profit from the sale of goods. We have repeatedly negatively surprised the market and ourselves.”
African Bank declined to comment when contacted by phone today.
The shares plummeted 79 percent to 56 cents as of 3:25 p.m. in Johannesburg, adding to yesterday’s 61 percent drop. Coronation Fund Managers Ltd., the bank’s biggest shareholder, fell as much as 6.5 percent to the lowest intraday level in five months. Capitec Bank Holdings Ltd., the bank’s largest competitor in South Africa, declined as much as 2.3 percent.