Johannesburg - Funds holding the debt of African Bank Investments Ltd, the failed South African lender, can segregate it from their other securities, according to South Africa’s Association for Savings & Investment.
The Financial Services Board, which regulates the industry excluding banks, said on August 15 funds with African Bank debt could move it to new portfolios, with the stressed assets shared equally among investors.
Such “side-pocketing” would allow funds to separate illiquid assets from more tradable investments, reducing the impact on portfolio performance.
“You can now carve out the bad assets and everyone will be treated equally,” Peter Blohm, senior policy adviser at Asisa, which represents money managers overseeing 1.6 trillion rand, said yesterday by phone from Cape Town.
“It shouldn’t mask a portfolio’s real performance.”
ABIL, as the lender is known, collapsed after saying on August 6 it faced mounting losses and needed at least 8.5 billion rand to survive.
Its senior and wholesale debt was impaired by 10 percent in a central bank rescue, while subordinated debt will be written off.
Shares were suspended on August 11 and Johannesburg’s stock exchange has not given a value for the securities.
Mutual fund managers had until today to register their intention to side-pocket ABIL debt with the FSB.
It was too early to tell how many managers would take up the option, Blohm said.
“We’ve got quite a number of applications,” Jurgen Boyd, deputy executive officer for Collective Investment Schemes at the FSB, said by phone from Pretoria.
“Tomorrow we’ll be in a position to update the market.”
Fitch Ratings upgraded Absa Money Market Fund’s national fund credit rating to AA+ from A after it passed the fund’s exposure to parent Barclays Africa.
ABIL debt was removed from the Absa Money Market Fund on August 15 after Barclays Africa said the failed lender accounted for about 1.5 billion rand in the 50 billion rand portfolio.
“It seems several managers may be seeking to set up side- pocket funds,” Andrew Canter, chief investment officer at Futuregrowth Asset Management, said by phone from Cape Town today.
“Side pockets could allow you to make it look like a portfolio’s performance is good.” - Bloomberg News