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African Bank yields fall as investors see hope for survival

But trade going through remains small, trader says.

Investors are betting that African Bank Limited’s odds of survival have improved following a central bank rescue.

Since April 8, yields on the Johannesburg-based company’s $280 million of bonds due October 2020 have dropped 12 basis points to 10.42% in London on Thursday. The securities started trading last week after South Africa’s central bank helped revive what was once the country’s largest provider of loans not backed by assets.

The notes are “definitely feeling better bid today,” said Petrie van Vuuren, a London-based credit trader for a unit of FirstRand, adding that a rally in emerging markets on Wednesday had helped to improve sentiment toward riskier assets. “Trade going through remains pretty small though — trade sizes vary from $500 000 to $1 million in nominal value. Still, that’s a notable improvement in liquidity compared to a week ago.”

African Bank collapsed in August 2014 with senior-debt investors owed more than R40 billion ($2.72 billion). As part of a revival, which involved a fresh banking licence and setting up a new lender, the old bank’s investors were swapped into new debt instruments on April 4, with bondholders able to recoup their investments after taking an initial 10% haircut.

© 2016 Bloomberg

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