INVESTORS are signalling mounting concern that the finances of African Bank Investments Limited (Abil) are deteriorating, sending bond yields of the largest local unsecured lender to record highs relative to government debt.
The premium investors demand to hold Abil’s Swiss franc debt due in August 2018 over similarly dated Swiss securities rose to a record 10.45 percentage points yesterday, climbing 558 basis points since the bonds were sold in February.
That compares with an average drop of 22 basis points to 3.01 percentage points for companies in the JPMorgan Chase CEMBI Financial Index.
The bank, which typically provides loans not backed by assets to low-income earners, has to fund rising bad debts and plug losses at furniture unit Ellerine, which it started trying to sell last year. Many clients are struggling to repay debt amid accelerating inflation and rising unemployment.
Abil has sold an average of nine bonds annually in each of the past four years, and has issued two this year, according to data compiled by Bloomberg.
It will update the market on the third quarter of its financial year on Wednesday.
spreads are blowing out because of concerns about Abil’s capital levels,” Independent Securities chief executive Simon Fillmore said yesterday.
Nithia Nalliah, the chief financial officer of Abil, declined to comment on Monday.
If the company had to issue new debt now, rising yields would “impact its ability to fund itself because it would be at an increased rate”, Arno Lawrenz, the chief investment officer at Atlantic Asset Management, said on Monday. “There are not many buyers.”
While Abil sold R5.5 billion of stock in December last year to bolster capital, that has been eroded by losses. Kokkie Kooyman, the head of Sanlam Global Investments, said earlier this month that it might need another rights offer of as much as R3bn before bondholders agreed to roll over debt. Abil has about R1bn of debt maturing this year and almost R10bn next year.
“Abil probably has enough cash flow to service its debt,” Bruce Stewart, the head of debt origination for Nedbank, said.
By the end of Abil’s first half in March, its total capital adequacy ratio was 25.2 percent, below its 30 percent target. The group wanted to increase that to 27 percent by the end of this year, it said in May.
Moody’s Investors Service cut Abil’s foreign rating to Ba1 in May, one step below investment grade. Since then, Lawrenz said, Abil had not sold debt or equity and “there is an absence of new information” about how much capital it had.
Abil chose to repay investors rather than sell new debt or refinance when a R150 million bond matured on Friday. This was an indication that the bank “felt comfortable” meeting its debt obligations, Lawrenz said.
While yields have widened, Abil’s stock has dropped 48 percent this year, making it the second-worst performer on the all share index. – Bloomberg