African Bank Swiss Franc Hedging Plans Save Investors More Pain
(Bloomberg) — African Bank, the failed South African lender with 555 million Swiss francs ($608 million) of debt, said hedges put in place after August saved it from more losses, allowing administrators to continue recovery plans.
African Bank Investments Ltd., which collapsed in August after losses mounted and funding dried up, has four Swiss franc bonds that were sold from 2012 to 2014 to help fund lending. An administrator was named Aug. 10 along with a consortium of banks to rescue the lender.
“African Bank management worked closely with the South African Reserve Bank and the South African banks involved in the consortium to re-instate an appropriate series of hedging arrangements,” Gavin Jones, head of funding and liability management in African Bank’s treasury, said in an e-mailed response to questions Wednesday. “Switzerland’s central bank’s decision to lift the cap on the franc will have no overall impact on the announced restructuring plans for African Bank.”
Senior debt holders in Abil, as its known, expect to lose 10 cents of every rand invested while other bondholders and shareholders may lose everything unless the rescuers manage a successful initial public offering of Abil’s “good” assets later this year. Without the hedging strategy, investors wouldn’t have been protected when the rand value of the Swiss franc liabilities increased. The rand has weakened 9.5 percent against the Swiss franc this year.
“This currency exposure has been offset by the rand value of applied hedge instruments held to protect against these risks and the impact that these risks may otherwise have had on the successful good-bank transaction,” Jones said, without giving more detail about Abil’s currency hedges.
The Swiss National Bank roiled global markets on Jan. 15 when it abandoned its three-year-old franc cap, causing the currency to strengthen. The cost of settling Abil’s Swiss debt would have risen almost 10 percent to more than 55 million Swiss francs, or 700 million rand, without the hedges, according to Bloomberg calculations.
To contact the reporter on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net Steve Bailey, Jon Menon
