No end in sight as African Bank shares continue to plummet

2014-08-07 12:46

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African Bank Investments Limited has lost about 96% of its market value over two days after saying it expects a record loss and will need to tap investors for R8.5 billion.

Abil’s shares were trading 89% lower at 28 cents at about 11am, after declining 61% yesterday. Before its trading update yesterday the stock was trading at R6.88.

“There’s panic in the market, but for good reason,” Jean Pierre Verster of 36ONE Asset Management, said today. “Abil in its current form is unsustainable and it’s not unrealistic to expect significant job losses.”

Leon Kirkinis, founder and chief executive of the company for the past 23 years, resigned yesterday after a third-quarter trading update which showed the business needed to raise as much as R8.5 billion to survive.

That’s more than eight times the lender’s current market value. Abil also said it expected to post a record R7.6 billion loss for the full year. It said it will split its “good” assets from the “bad” in an effort to contain the losses.

The South African Reserve Bank is in talks with Abil, spokesperson Hlengani Mathebula said today, without giving more details.

There have been no indications that other South African banks have been affected negatively by Abil’s trading update, the bank said yesterday.

Abil’s troubles stem from the purchase of furniture retailer Ellerine Holdings in 2008 for R9.2 billion. It said at the time the business would help it find new clients and boost lending.

After a series of writedowns and losses, which Abil had to fund by selling debt or equity because it didn’t take deposits, it planned to sell the unit and was seeking to prevent losses there hurting the rest of the bank.

“I have no idea whether they’ll survive or not; what I can tell you is that I won’t be buying any shares,” Gavin Wood, chief investment officer at Kagiso Asset Management, said yesterday.

“They’ve been particularly risk-seeking in the last three years, verging on reckless, and I think the chickens are coming home to roost.”

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