African Bank in Ellerines talks to stem losses

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Johannesburg - African Bank Investments Ltd., South Africa’s largest provider of unsecured loans, said it’s in partnership talks for its Ellerine Holdings Ltd. furniture unit as part of a three-year turnaround plan for the bank.

Part of the bank’s strategy “is fixing Ellerines and getting it onto a footing where we are able to conclude an appropriate, strategic relationship with a new retailer,” chief executive Leon Kirkinis said in a January 29 interview in Johannesburg, without identifying the potential partner.

“Access to Ellerines gives us one of the biggest distribution footprints in the country. We want to hang on to that.”

Abil, as the bank is known, took a 4.6 billion-rand impairment on the unprofitable Ellerines in October and risks another 800 million-rand writedown this year, chief financial officer Nithia Nalliah said in November, adding that a trade buyer with retail expertise may be best suited to run the business.

Losses and a slumping share price prompted Abil to undertake a 5.5 billion-rand rights issue to maintain capital levels.

Goldman Sachs Group Inc. managed the rights offer.

“It’s about repositioning Ellerines within a big framework that provides the opportunity to bring our skills to a much bigger retail group,” Kirkinis said. “We’re still in high-level discussions.”

Improve Products

Abil’s three-year plan also involves using capital from the rights issue, proactively working with regulators, training branch staff, strengthening its collections unit and pursuing innovative ideas to improve products, Kirkinis said.

Successfully following this plan will boost its return on equity to more than 20 percent by 2017, he said.

That compares with 2.9 percent for the fiscal year through September.

The bank had previously said it had reviewed Ellerines with the aim of selling it to a retail group.

It had received no offers for the business by mid-November, though some private- equity firms had shown interest, Nalliah said.

Abil rose as much as 4.7 percent to 11.1 rand, its biggest intraday gain since December 27, and was trading at 10.98 rand as of 11:33 a.m. in Johannesburg. - Bloomberg News

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