African Bank Debt Holders Cut Interest Payments to Duck LossRobert Brand
South African money managers will reduce interest payments to investors on African Bank Investments Ltd.’s short-term debt to avoid capital losses in the wake of the lender’s rescue.
Money market funds will offset writedowns on African Bank debt securities against income for August, Leon Campher, the chief executive officer of the Association for Savings and Investment South Africa, said in an e-mailed response to questions today. The Financial Services Board said in a circular to fund managers that one day’s interest may be used to cover losses and if that isn’t enough, funds may reduce the number of units rather than impair their value.
African Bank, known as Abil, got emergency support from the Reserve Bank after the Johannesburg-based provider of unsecured loans lost most of its market value in three days. The lender will be split to create a bad bank with soured loans and senior debt instruments will be transferred to the good bank at 90 percent of face value, the central bank said yesterday.
“We won’t break the buck,” said Paul Hutchinson, the head of retail business development at Cape Town-based Cadiz Asset Management Ltd., using a phrase that refers to the net asset value of shares in a money-market fund falling below 1 rand. Cadiz has 1.48 percent of its 2.1 billion rand ($197 million) money-market fund invested in African Bank debt, he said by phone.
Money-market funds overseeing about 270 billion rand have 1.3 percent exposure to African Bank debt, said the FSB, which regulates financial-industry companies excluding banks.
African Bank surprised investors on Aug. 6 by saying Chief Executive Officer and founder Leon Kirkinis resigned. It will have a record loss this year and needs a fresh capital injection eight months after a rights offering.
South African money-market funds keep net asset values at 1 rand a share, meaning a rand invested can always be redeemed for a rand. A drop of net asset values below that level would risk shaking investor confidence in a market seen as low-risk and used by companies to raise short-term cash.