ABIL - The Good, The Bad and The Ugly

The big news for today is the rescue plan announced for ABIL by Gill Markus yesterday evening. As of 16:00 yesterday ABIL went into curatorship and this morning a SENS announcement was released stating that the shares and bonds trading has been suspended on the JSE.


The outline of the plan from the SARB is that ABIL will be split into a "Good Bank", a "Bad bank" and then the current company with the left overs. Investors will be raising R10 billion to recapitalise the good bank and the bad bank will be taken over by the SARB, with the underwriters of the R10 billion capital raising being our local banks and the PIC. Nothing has been said what will become of Ellerines, I doubt that it will fall under the Good bank structure and it isn't something that the SARB will take over. Does that mean they have a buyer lined up for it?


Current equity holders will have the chance to take up a stake in the Good bank company, which will be listed the JSE in due course. Given that bond holders are taking a 10% haircut on their money, the current shares in issue are probably worth nothing or a couple of cents at best (which you would only receive once everything is wrapped up which could take years). The value in the current shares will be in the ability to buy into Good bank at hopefully a discount, which means you would have to pony up more cash to realise this value.


This outcome is probably the best outcome that could have happened, it is clean and swift which is needed when it comes to banking activities. My only criticism is that the government is stepping into the private sectors realm and the tax payer will have to fit the bill if the bad loans are worse than estimated, which is a possibility given the vast miscalculation by management of the quality of their book.


A big problem for ABIL was that the man on the street was starting to ask (incorrectly) if they should repay their loans now that the company looks like it is going under. If people start to believe that it creates a whole new set of problems because performing loans then would become non-performing loans. The swift actions from the SARB has meant that operations will continue as normal and this incorrect perception will die down. Further to that and more from the view as a tax payer who has been lumped with the bad bank, the SARB said the following, "collection against the bad book will be continued, and indeed strengthened: there is no payment holiday for anyone owing on a loan from African Bank. " For customers it will be like nothing has changed.


Over the next few days more details will emerge from the company and we will know exactly where we stand.