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Sept. 30 (Bloomberg) -- The collapse of African Bank Investments Ltd. last month has put more than 4 billion rand ($356 million) of government pension money at risk unless the failed lender can be rescued.
The Public Investment Corp, the continent’s biggest fund manager and overseer of the bulk of the South African government’s pension money, owned more than 12 percent of African Bank. Abil, as it’s known, failed after it forecast record losses and said it needed at least 8.5 billion rand to survive. The central bank devised a rescue plan that involves buying the bad loans and recapitalizing the “good bank.”
“The net exposure of the Government Employees Pension Fund to Abil currently stands at just over 4 billion rand, 0.5 percent of the PIC’s listed portfolio,” Finance Minister Nhlanhla Nene said in a written response to questions in parliament from the opposition Freedom Front Plus party, dated Sept. 5. “The PIC hopes to recover some of this through its participation in recapitalizing the ‘good bank.’”
As part of the South African Reserve Bank’s Aug. 10 plan to save Abil, six banks and the PIC were asked to underwrite 10 billion rand so that the lender could undertake an initial public offering and list in Johannesburg again early next year. Later in August the central bank also instituted a formal investigation into why Abil failed and who may be liable.
“PIC has committed to provide up to 50 percent of the total amount required to recapitalize the ‘good bank’ which cannot exceed 5 billion rand,” Nene said in response to questions from another opposition party, the Democratic Alliance. “The PIC will await the results of the current SARB investigation into the activities of the bank leading up to the events of Aug. 8 before any decision is taken on whether or not to act against Abil management.”
Abil, which was South Africa’s largest provider of unsecured credit to low-income earners, had bad loans amounting to about 17 billion rand when it failed, according to the central bank. The bank agreed to buy that book for 7 billion rand, using Abil’s debt collection center to try to recoup the money.
“The involvement of PIC can of course be justified on the ground that such a strategic investor would be happy to be involved in such a significant bank,” Peter Attard Montalto, an economist at Nomura International Plc in London, said by e-mail today. With the PIC committed to as much as half of the rescue, it “increasingly looks like an indirect state bailout of Abil, which is not necessarily a positive.”
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