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Abil halfway out of business rescue

‘It is not insolvent,’ says insider ahead of shareholder meeting.

JOHANNESBURG – African Bank Investments Limited (Abil) – the parent of failed lender African Bank – has already paid half of the amount owing to its creditors and is likely to repay the outstanding R500 million using dividends from its subsidiaries, according to business rescue practitioner (BRP), Dawie Van der Merwe.

“Abil is not insolvent,” Van der Merwe stressed ahead of a consultative meeting due to take place with Abil shareholders next week.

The meeting is an opportunity for Abil shareholders to ask questions and make suggestions, said Van der Merwe, who hopes to use the gathering to put misconceptions regarding the business rescue process to rest.

For example, a number of Abil shareholders are failing to distinguish between Abil and its banking subsidiary, African Bank, which has been under curatorship since August 2014 and is expected to officially re-launch in April.

The two entities are completely separate and Abil shareholders do not as a matter of course have claims on African Bank Good Bank, which on Thursday will issue documents detailing what its creditors can expect to get as a result of the restructuring of the bank. Creditors will then have to vote to give final approval to the exchange offers.

A revised business rescue plan for Abil, meanwhile, will be published after next week’s meeting, said Van der Merwe.

Abil was placed into business rescue in June 2015 following the failure of its subsidiary, Ellerine Furnishers to repay loans to large South African banks for which Abil was the guarantor.

“The previous [business rescue] plan was singularly aimed at the disposal of Stangen to African Bank, which transaction lapsed following the much publicised court action by some of the BEE shareholders,” Van der Merwe told Moneyweb via telephone on Tuesday, referring to African Bank’s failed acquisition of insurer Stangen from Abil, which is the parent of both companies.

BEE shareholders at the time felt that the purchase price of R1.4 billion was too low.

According to Van der Merwe, the value generated from the sale would have in fact resulted in a net R2.6 billion, as Stangen would have declared all excess cash as dividends to Abil prior to the implementation of the sale.

“We had a proposed quick solution last year and now we have a bit more of a challenging road to realise value for Abil. Stangen is still a subsidiary of Abil and, unless we sell it, it will remain one and will continue to pay dividends as and when it is able to,” Van der Merwe said.

Stangen as lynchpin

Although Stangen is not writing any new business, it has an existing book in place with historical customers of African Bank. The insurance-related agreements between the two companies are currently the subject of litigation between Stangen and African Bank curator, Tom Winterboer, after they were cancelled by African Bank, according to Van der Merwe.

African Bank did not respond to requests for comment.

The speed at which the business rescue of Abil is concluded is largely dependent on how quickly Stangen declares dividends, said Van der Merwe. This is subject to the decision of Stangen’s independent board and consent from the Financial Services Board (FSB).

“Whether we will in the fullness of time extract the same value out of Stangen by not selling it is open for debate,” he said.

Abil also has a claim against African Bank worth some R450 million, Van der Merwe added, which is subject to the formation of Good Bank. 

As soon as the creditors have been repaid and Abil is no longer considered to be financially distressed, the BRPs will hand it back to the board. “Essentially it will then be a cash shell company with hundreds of millions of rand in cash. The board may or may not choose to buy another business and build it up again,” Van der Merwe suggested, pointing out that Abil is an investment company after all.

Whether or not Abil will survive its current suspension from the JSE is something that only time will tell, said Van der Merwe.

Abil’s BEE shareholders meanwhile are suing directors of the failed lender in their personal capacity, as well as audit firm, Deloitte, for what they deem to be reckless behaviour, according to a report from Business Day.

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