African Bank Suspends Debt Payments as Accounts Investigated

Debt holders in African Bank Investments Ltd., the failed South African lender, may not be paid when 1 billion rand ($94 million) of bonds mature next month, while shareholders may not have lost everything.

“The September bonds are suspended for now -- we need to get a better handle on things first,” Tom Winterboer from PricewaterhouseCoopers LLP, who was appointed caretaker of the bank, said by telephone from Johannesburg today. “Interest is being suspended. The 10 percent haircut for senior bondholders is on the interest and the capital.”

Winterboer, who was called to the South African Reserve Bank on Aug. 8 and asked to take over the running of Abil, as the bank is known, has pored over the failed lender’s books for almost three days. Abil collapsed last week after saying it needed to raise at least 8.5 billion rand to survive, causing the stock to drop 95 percent in three days and bond prices to fall by more than half.

The central bank is splitting Abil into a good bank and a bad bank, which will hold the soured loans. Winterboer has been assigned the task of reviving the remaining good bank with the help of seven institutions that are underwriting a 10 billion-rand fundraising. The stock was suspended on Aug. 11 and the bank, in curatorship, has frozen payments on its debt.

“We’re concerned as to how long this frozen state will persist,” Conrad Wood, head of fixed income at Momentum Asset Management, which holds Abil debt, said by telephone. He said the good bank should be able to repay its short-term debt given the planned fundraising.

‘Sympathetic’ Curator

“We’re working with the numbers and it’s hard to have answers,” Winterboer said. “We need to establish values and what goes into the good bank. People have lost a lot of money and one is sympathetic.”

SARB will buy 7 billion rand of the bad bank’s 17 billion rand of loans and seek to recoup that money by collecting the debt. The more the central bank can recover, the more may be available for bondholders.

“There’s a belief that the 7 billion rand is recoverable,” Winterboer said. He will give a further update to the market as soon as possible, he said, without giving details. For shareholders “all is not necessarily lost,” he added.

Reckless Lending

African Bank’s decline started in March last year when the National Credit Regulator said it wanted to fine the company for reckless lending, scuppering Abil’s plan to raise money in foreign debt markets.

The bank’s profit dwindled in the first half and it cut its dividend. As it posted a full-year loss, Abil sought to raise

5.5 billion rand in a rights offering to bolster capital.

Until there’s full legal certainty on the restructuring and the impact of Abil’s collapse on both senior and subordinated bondholders, it’s impossible to know what the final losses will be for all bondholders, Johannesburg’s stock exchange said in a note on its website yesterday.

If Abil had gone into liquidation, senior bondholders would be facing bigger losses than just a 10 percent haircut, Winterboer said. “Now they have certainty, and SARB and the banks thought that was a fair number.”

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