South Africa’s central bank stepped in to rescue unsecured lender African Bank Investments on Sunday, placing it under external supervision and announcing plans for a US$940 million capital injection underwritten by local lenders.
The rescue, which will see the South African Reserve Bank acquire the lender’s 17 billion rand (US$1.6 billion) bad loan portfolio, follows an investor exodus from African Bank last week after it warned of a full-year loss and said it needed a massive capital raising.
Abil, as the bank is widely known, has been crushed by waves of bad loans as its core market of low-income borrowers have failed to repay debts, struggling with high unemployment and rising fuel and food costs.
“This is something that is not done lightly,” South African Reserve Bank Governor Gill Marcus told a news conference. “There is a private [and] public sector responsibility, given the nature of African Bank and its clients and its role.”
Abil has been put under curatorship, or outside supervision, led by Tom Winterboer, an executive from PricewaterhouseCoopers, Marcus said.
A group of local banks, including Standard Bank and FirstRand as well as Abil’s second-largest shareholder, the state pension fund, would form a consortium to underwrite a 10 billion rand capital raising.
Abil would be split into a “good bank,” representing a loan book worth 26 billion rand after bad debts, and a “bad book,” Marcus said.
The central bank would acquire the 17 billion rand “bad book” for 7 billion rand, she said.
While Abil has relatively few depositors, it relies on the bond market for an overwhelming amount of its funding, Marcus said the central bank would make an “unequivocal commitment” to retail depositors that their money was safe.
Holders of the bank’s senior debt are to see the bonds restructured and assumed by the “good bank” at 90 percent of face value, meaning a 10 percent write-down in the value of their assets.
Shareholders and investors with Abil’s subordinated debt are to be “afforded the opportunity to participate in the good bank” Marcus said, likely meaning that holders of junior debt are to see those investments turned into equity.
Marcus said the curator and the Johannesburg Stock Exchange would meet to discuss the bank’s listing on the exchange.
It was not immediately clear if it would be delisted.
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