Johannesburg - African Bank Investments Limited (Abil) was in partnership talks for its Ellerine Holdings furniture unit as part of a three-year turnaround plan for the bank, South Africa’s largest provider of unsecured loans said this week.
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 on Wednesday, 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 took a R4.6 billion impairment on the unprofitable Ellerines in October and risked another R800 million writedown this year, chief financial officer Nithia Nalliah said, adding that a trade buyer with retail expertise might be best suited to run the business.
Losses and a slumping share price prompted Abil to undertake a R5.5bn rights issue to maintain capital levels. Goldman Sachs managed the 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.”
Abil’s plan also involved using capital from the rights issue, working with regulators, training staff, strengthening its collections unit and pursuing innovative ideas to improve products, he said.
Successfully following this plan would boost its return on equity to more than 20 percent by 2017, he said. That compares with 2.9 percent for the year to September last year.
The bank had previously said it had reviewed Ellerines with the aim of selling it to a retail group. It had received no offers by mid-November, though some private-equity firms had shown interest, Nalliah said.
Abil rose as much as 4.7 percent to R11.10, its biggest intraday gain since December 27, but closed 3.40 percent down at R10.24. – Bloomberg