Johannesburg - South Africa's African Bank issued a senior unsecured bond worth 175 million Swiss francs (R2.15 billion) on Wednesday, which investors took as a sign of confidence in the ailing lender and sent its shares sharply higher.

The 4-1/2 year bond with a coupon of 5 percent is the fourth Swiss issue by the bank commonly known as Abil since July 2012 and brings to 555 million Swiss francs the total amount raised so far.

Abil has struggled to recover loans in the past year as distressed borrowers failed to repay.

In November, it issued shares worth 5.5 billion rand ($500 million) to strengthen its balance sheet.

“If Swiss investors are happy to loan them money at this coupon, that gives the local shareholders some comfort,” said Greg Davies, equities trader at Cratos Capital.

“These foreign investors have shown a sign a confidence and obviously the share price here has responded in turn.”

Its shares rallied as much as 7 percent, but have since given up some of those gains and were up 4.7 percent at 9.79 rand at 11:40 SA time.

The stock is down 18 percent so far this year, after losing about half its value in 2013.

The unsecured lender has also raised another $700 million through the same London-listed $6 billion euro medium term note programme, said Gavin Jones, a executive for Abil's funding and liability management.

African Bank, which does not take deposits and raises liquidity chiefly through borrowing, also has a 25 billion rand domestic programme that has 16.6 billion rand ($1.5 billion)currently outstanding. - Reuters