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Saving grace for Abil shareholders?

Strong financials suggest insurer Stangen might be it.
African Bank curator, Tom Winterboer.

JOHANNESBURG – The sale of Stangen, African Bank Limited’s credit life insurer, to a consortium of banks and the Public Investment Corporation (PIC), could prove a boon for shareholders of the failed lender if regulatory change doesn’t reduce the insurer’s price tag.

Stangen (the Standard General Insurance Company) is held by African Bank Investments Limited (Abil), which was placed into business rescue last month.

Abil is also the holding company of African Bank Limited (ABL), currently under curatorship, and furniture retailer Ellerine Holdings, which is under business rescue.

It recently announced that it had received an offer from a consortium comprising six large South African banks and the PIC to buy the entire issued share capital of Stangen.

The same consortium underwrote a R10 billion capital raise for African Bank after it collapsed in August last year under a mountain of bad debt. Shares in Abil were suspended days later at 31c a share, leaving ordinary and preference shareholders in the lurch.

They have little hope of getting anything from Ellerines, which remains in business rescue, or African Bank, which must first satisfy the claims of unsecured debt holders and may only relist in two years time.

Stangen, which African Bank curator Tom Winterboer hopes will eventually be a part of the restructured Good Bank, could make all the difference to shareholders.

The insurer’s interim financials indicate that at the end of March 2015 it held cash on its balance sheet of R1.65 billion and reported profit before tax of R786 million.

These numbers suggest that around R1.7 billion would be the minimum offer price for Stangen.

Assuming it reports a profit of R1.6 billion for the full-year (R786 million x 2), Stangen could fetch anywhere between R3.1 billion on a price/earnings (PE) multiple of only two or R15 billion on a PE multiple of ten.

The banks index PE ratio is 14.5, according to market data from IRESS.

At this stage, Abil’s only apparent liabilities (around R1 billion) are a R550 million guarantee to banks that granted banking facilities to Ellerines, and a loan from African Bank of about R447 million.

Any money left over after liabilities have been paid should go to Abil shareholders, first the preference shareholders and then the ordinary shareholders.

According to a money manager who preferred to remain anonymous, the face value of Abil preference shares (about 13.5 million pref shares were suspended at R7.80 in August 2014) is R1.1 billion.

Assuming there is a another R1 billion left from a R3.1 billion Stangen sale (a conservative valuation), there should be a distribution dividend to ordinary Abil shareholders too. At more normalised levels, the valuation could be well above Abil’s suspended August share price of 31c.

Regulatory clouds loom large

Bronwyn Blood, portfolio manager at Cadiz Asset Management, said there could be some value in Stangen for shareholders but it was “too soon to tell”.

“There is a significant amount of regulatory change in terms of the NCA [National Credit Act], which has created further complications for the Good Bank. Stangen’s future and sale price very much depends on its ability to act as a credit life insurer for the Good Bank. There is bound to be further regulatory changes on the credit life front, which could significantly impact the sale price of Stangen,” Blood explained.

It is anticipated that the National Credit Regulator (NCR) will cap credit life insurance this year, while proposed reductions to interest charges on loans and moves to tighten the debt collection process pose further challenges to the profitability of unsecured lenders’ books.

“It is positive that Stangen is still trading and profitable in a very difficult environment, taking into account that African Bank is writing fewer new loans than it used to,” Jeleze Hattingh, portfolio manager at Element Investment Managers, said via phone from Cape Town.

However, Hattingh said that an independent valuation of Stangen, as well as clarity regarding the offer price made by the consortium, are needed before comments can be made on the potential recovery that shareholders might enjoy.

Element, a preference shareholder, awaits clarity from Abil’s business rescue practitioners, Hattingh said.

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Great research
It certainly is not too soon to tell if there is value in Stangen
R1.6 billion cash and a Net Asset Value of R1.39billion is value – is it not ?
Looking at there past 6 months cash conversion to March 2015 (selling policies alongside loans made under curatorship – can hardly be mis-priced product – and will obviously be in line with new regulations) – one can assume another bumper 6 months to September 2015 i.e. another R750m cash plus on the Balance Sheet.
This leaves a cash backed net asset value of over R2billion – plenty to cover the full face value of the Preference Shareholders mentioned in the above article (even after paying off the outstandings)
Cannot wait to see the valuation of Stangen and then vote on it !!
So us African Bank shareholders (CODE: ABL) should get a tidy sum if Stangen gets sold on a going concern basis (ie well above NAV) – well over 31c !!!!!

Ellerines Holdings under business rescue? Thought the dog was put out of its misery almost a year ago.

Preference shares were trading at around R77.10 before it fell to R7.80. Surely, it will not be acceptable for preference shareholders to be reimbursed at R7.80. Of course all shareholders loose when a company goes down, but since preference shareholders must get “preference” I don’t think it is fair for them to receive only the value the preference shares had at the time of suspension before paying out the difference to “ordinary” share holders.

No Japie – the article says that there are 13.5m Preference Shares and they will get face value of around R1.1bn – that is R82 odd – then they will be paid missing dividends and only then do shareholders get what is left

its less than 550mm in guarantees..as per the business rescue filing interim payments had been made and outstanding amount is closer to 380mm. More good news!

So how long before we know exactly if shareholders will receive anything?
1 year? 2 years?
Does the company first need to relist?

The de-listed African Bank (CODE:ABL) owns 3 material companies;
Ellerines – business rescue – expect Zero
African Bank – curatorship – expect Zero
Stangen – discussed above – worth anything from R3bn to R8bn

So the next step is to find a buyer to warehouse Stangen until it gets sold to the new Good Bank. At the moment we are aware of the sens announcement that the consortium has made an offer (6 banks + PIC) – once this offer is made public we can calculate the “potential” value of CODE : ABL ordinary shares (Potential offer price less Bank claims, creditor claims and ABLP claims). As this offer has been made – I think it is days rather than years before this offer is made public

In addition I am sure you will have rights to participate in the new Good Bank – when it lists in supposedly 2 years time

Thanks for the response robot
So what I understand from your response is that once the offer is made public African Bank will need to accept the offer and if this is the case shareholders will receive a dividend payout immediately after all claims have been paid?
Please Advise

Oh ok I see so once the offer is made public we will be able to determine the value of African Bank shares
But then how long do we have to wait before we can actually sell these shares?

To answer your question, the way i understand this, is that a dividend will be paid to your portfolio… so there’s no need to sell your shares to get the money.

Thanks for the response Viwe, last question would be when can one expect a finalization of a payment or no payment to be made to shareholders?
Weeks?
Months?

Well the offer has been made and it doesn’t look like ordinary shareholders will get anything. Sad if you consider how shareholders supported the bank through rights offers. They walk away with a business that didn’t shut it’s doors for even one day, and will be profitable within a year.

End of comments.

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