Coronation learns ‘sobering lesson’ from Abil wipe-out

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Bloomberg

AFRICAN Bank Investments Limited’s (Abil’s) largest shareholder, Coronation Fund Managers, apologised to investors yesterday and said it had learned a “sobering lesson” after its stake in the failed lender was wiped out.

The Reserve Bank put Abil into curatorship on Sunday after the lender said last week that it needed capital of at least R8.5 billion to survive. Abil’s shares were suspended on Monday after the central bank split the firm into a “good” bank and a “bad” book, and arranged for institutions to underwrite a R10bn capital increase.

Coronation held about 22 percent of Abil before the company released a trading update last Wednesday that precipitated a drop of more than 90 percent in its share price, according to data by Bloomberg. The fund manager said it then cut its holdings to less than 9 percent by Friday.

“Losses have been incurred, for which we apologise,” Coronation said. “This has been a humbling experience for us. We do not like to make mistakes.”

Still, Abil’s meltdown would not have a significant impact on the performance of any of its funds, Coronation said, without disclosing how much it had lost in rand terms.

Abil’s long-term deposit and senior unsecured debt rating was lowered to Caa2 from Ba1 by Moody’s Investors Service on Tuesday, which cited “expected losses” for senior bondholders and wholesale depositors. Another downgrade may follow because of the risk of higher-than-anticipated losses.

“Equity holders, preference share holders and subordinated debt holders will lose all their capital,” Coronation said.

Reserve Bank governor Gill Marcus said on Sunday that Abil’s shareholders would “take the hit”.

Coronation’s shares, which had gained 24 percent this year before Abil’s August 6 statement, fell 6 percent to R93 as the lender collapsed last week. The stock has recovered some of its losses, and gained 30c to close at R97 yesterday.

Stanlib, Abil’s third-biggest shareholder before the collapse, said that money market investors’ returns would be cut by as much as 0.17 percent. Stanlib had 1 percent equity exposure to Abil and held senior and subordinated debt, the fund manager said. The Public Investment Corporation, Abil’s second-largest shareholder, has not disclosed losses.

Shareholders might not be completely wiped out, said Tom Winterboer, who was appointed caretaker of Abil. “We need to establish values and what goes into the good bank,” he said.

Fifteen months before Abil’s weekend rescue, David Stemerman told his fellow US hedge fund managers to bet against the South African lender.

Stemerman, the founder of $3bn (R32bn) Conatus Capital Management, told a New York hedge fund conference that Abil had become vulnerable after aggressively building up its unsecured consumer lending investments and becoming too reliant on financing from the bond market.


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