The collapse of African Bank Investments Limited (Abil) has forced the custodian of most of the South African government’s pension money to agree to invest R5 billion to rescue the lender.
Public Investment Corporation (PIC), the continent’s biggest fund manager, owned 12 percent of Abil when it failed last month.
Abil collapsed after it forecast record losses and said it needed at least R8.5bn to survive. The central bank devised a rescue plan that involves buying the bad loans and recapitalising the “good bank”.
“PIC has committed to provide up to 50 percent of the total amount required to recapitalise the ‘good bank’, which cannot exceed R5bn,” Finance Minister Nhlanhla Nene said yesterday in response to questions in Parliament from the opposition DA.
As part of the Reserve Bank’s August 10 plan to save Abil, six banks and the PIC were asked to underwrite R10bn so that the lender could hold an initial public offering of the restructured entity on the JSE early next year.
“The net exposure of the Government Employees Pension Fund to Abil currently stands at just over R4bn,” which was 0.5 percent of the PIC’s investments, Nene said in response to questions from the opposition Freedom Front Plus party.
“The PIC hopes to recover some of this through its participation in recapitalising the ‘good bank’.”
State bailout
Abil, which was South Africa’s largest provider of unsecured credit to low-income earners, had bad loans amounting to about R17bn when it failed, according to the central bank.
The Reserve Bank bought the book for R7bn. With the PIC having potentially lost R4bn and now investing another R5bn, more than R16bn of government resources are now committed to the failed lender.
It “increasingly looks like an indirect state bailout of Abil, which is not necessarily a positive”, Peter Attard Montalto, an economist at Nomura International in London, said yesterday.
“The involvement of the PIC can, of course, be justified on the ground that such a strategic investor would be happy to be involved in such a significant bank.”
The central bank is investigating why Abil failed and who may be liable.
The PIC would wait for the results of that inquiry, due in about March, before deciding on any legal action against the directors of Abil, Nene said.
If the central bank and the PIC were not trying to save Abil, “the rating agencies would have been all over us with downgrades and investors [would have been] massively spooked”, Simon Brown, the chief executive of JustOneLap, an investment and trading training website, said.
“There is almost an unwritten rule around now that governments must interfere in financial markets to keep things on an even keel.” – Bloomberg