Johannesburg - Bond investors in African Bank Investments Limited (Abil), who sent prices plunging by more than 50 percent last week, are joining shareholders in signalling the local provider of unsecured loans is running out of options.
The price on Abil’s $350 million (R4 billion) of bonds due February 2017 slumped to 45 percent of face value on Friday, from 99 on August 1, according to data.
That drove the yield to 47.49 percent, surging more than 29 percentage points the past two days.
The extra yield investors demand to hold the bonds rather than equivalent US treasuries widened by 25 percentage points in the period.
With the stock sinking 93 percent since Abil said two days ago it needed to raise as much as R8.5bn to survive, investors including Piet Viljoen at Regarding Capital Management said the lender would struggle to raise the cash, more than eight times its market value.
Abil’s second-biggest shareholder said on Thursday that it wouldn’t pour good money after bad unless there was “a better plan”.
“A successful capital-raising would give bondholders a lot of comfort,” Viljoen, who oversees the equivalent of about $500m including Abil bonds, said on Thursday.
“The market doesn’t seem to have confidence in their ability to raise capital.”
Abil declined to comment when contacted on Thursday.
Yields on Abil’s R652m of bonds due in October 2016 have been unchanged at 4.16 percent since July 21.
That indicated there had been little trading and might not reflect the true price, said Bernard Fick, the chief executive officer of Prudential Portfolio Managers.
“There is no liquidity in the market,” Fick said from Cape Town on Thursday.
“Considering the movements in the foreign bonds, it would be fair to say that local prices need to be somewhat impaired.”
Abil has R28bn of debt outstanding, including about R14.4bn in Swiss francs as well as dollars.
Leon Kirkinis, the founder of the bank and its chief executive for 23 years, resigned on Wednesday after the company said it expected to post a R7.6bn annual loss and would seek to split “good” assets from “bad”.
Abil said on Thursday in a statement that it would no longer fund Ellerines, its money-losing furniture unit.
“This is the first step in the right direction,” Luca Carrozzo, a money manager with Banque CIC Suisse said on Thursday.
“If they are able to show a serious business plan to the investors we think it’s possible that African Bank will succeed with their capital raising,” he said.
The Public Investment Corporation (PIC), Abil’s biggest shareholder after Coronation Fund Managers, said it remained unconvinced.
Abil’s shares fell 20 percent to 40 cents by 11.28am in Johannesburg, after plummeting 81 percent on Thursday.
The shares continued to fall on Friday, dropping 38 percent to close at 31c.
Yields on the February 2017 notes retreated 38 basis points to 47.1 percent.
The rand gained 0.3 percent to R10.7364 per dollar, and was bid at R10.6913 at 5pm on Friday.
“If we rescue it will depend on management’s plan or we’ll be throwing good money after bad,” chief investment officer Dan Matjila said from Pretoria on Thursday.
“We want a better plan in changing the business model into a more fully-fledged bank with reasonable other sources of revenue and a stronger board,” he added.
The PIC oversees R1.4 trillion of government employees’ pension funds and holds 12.4 percent of the bank, according to data.
Abil had about a week to finalise a turnaround plan, Johannesburg-based Business Day reported on Friday, citing Matjila.
The SA Reserve Bank was in talks with Abil, spokesman Hlengani Mathebula said from Pretoria on Thursday, without giving details.
“There is no market for these bonds, so even if you wanted to sell, you couldn’t,” Bronwyn Blood, a fixed income asset manager at Cadiz Asset Management in Cape Town, said.
“For now, it’s a case of sit tight and don’t panic.” – Robert Brand and Renee Bonorchis from Bloomberg