Abil curator: Targeting end-February to re-list R26bn “good bank”
Some good news at last for shareholders of collapsed microlender African Bank. The SARB-appointed curator Tom Winterboer of PWC expects the "good bank" part to be re-listed towards the end of February 2015. He explains that the insurance subsidiary StanGen has some value that would accrue to those who hold formerly JSE-listed Abil shares. "They should get something back," Winterboer says, "but it's too early to tell how much." Anything at all is more than some smart market operators anticipated. – AH
[soundcloud url="https://api.soundcloud.com/tracks/167243862" params="auto_play=false&hide_related=false&show_comments=true&show_user=true&show_reposts=false&visual=true" width="100%" height="450" iframe="true" /]
ALEC HOGG: In this special podcast, we pick up with the Curator of African Bank Ltd, Tom Winterboer from PwC. Tom, it was a month ago yesterday that you moved into the hot seat. Are you making much progress?
TOM WINTERBOER: Alec yes, it was exactly one month yesterday so yes, we're working away. We've identified three things that we're working on. I'm happy to talk some more about it then. (1) I want to make sure that we conclude on the deal that was envisaged on the 10th of August, (2) looking at the ongoing operations of the bank, and (3) looking at setting up the future of the new bank.
ALEC HOGG: The deal was 'the good bank and the bad bank'. Has that worked out pretty much as you thought?
TOM WINTERBOER: Yes. Some of it is still ongoing so the intention is to take the good bank and put it into a new, separate entity. We don't like calling it a bad bank, but looking into the bad book: that goes into a separate entity and that will be owned by the Reserve Bank. Yes, we're working away on that, and perhaps I can give you a timeline, which I think is useful. We're looking at a listing of the new entity/new bank, which will hopefully include Stangen, the insurance business currently owned by Abil, and looking at listing that towards the end of February, so that is just the high level to which we want to go.
ALEC HOGG: That's quite an ambitious plan.
TOM WINTERBOER: Yes, we have some good elements in there so in terms of the transaction, there are quite a lot of specific deals in there and about four things that need to happen. The first one is to set the platform up (forming the new company), so that is in the process. The second part of that is just getting the transaction itself into place, so there are various valuations. For instance, the StanGen valuation, to bring it into place in dealing with the various funders and the bondholders to make sure that we deal with them as envisaged in the 10th of August announcement. Obviously, with the Competition Commission, we hope to get that in tomorrow, and then to deal claw back mechanism as well, in terms of what the Reserve Bank puts in and what ultimately comes out of that.
ALEC HOGG: Just to stay with the good book for a while, has it been of the size it was originally anticipated?
TOM WINTERBOER: Yes. What we're doing in terms of 'good book'… We're already saying 'let's take the best assets of African Bank' and putting that into the good book. That will go to the tune of R29bn for which maybe R26bn will be paid, so those would be the assets and the remainder will go into the bad book. There will however, still be some good assets in the bad book (if you want to call it that). It's literally, just a split that was agreed on at the time, so there's still some value in the bad book for which the R7bn is being paid.
ALEC HOGG: Just for the uninitiated, what is the difference between the two? Do you draw a line in the sand and say 'well, these people haven't paid their accounts for six months' for example, 'so they'll go into the bad book and the rest in the good'?
TOM WINTERBOER: No, not necessarily. It's really saying 'what are the top R29bn for which R26bn is paid? What is the best R29bn of the book' and that will go into good bank, the new bank then. That's why I'm saying it could well mean that of the R17bn the Reserve Bank takes over in terms of an entity, there would still be some good part of the book in that.
ALEC HOGG: How is it all going to work out, as far as the people who bought shares in those last three days of Abil's listing, are concerned?
TOM WINTERBOER: Yes, maybe I've said it before, we have Abil as the holding company. Then one has African Bank as one of the three subsidiaries. The other one is StanGen, which is an insurance company and the third component is Ellerines Holdings Ltd, so Abil shareholders…their shareholding would be in Abil as opposed to African Bank specifically. In any situation such as this, one would look firstly, at African Bank and look at those bondholders. Firstly, one needs to make sure that your normal creditors are being paid and your retail depositors, etcetera would be kept whole, and then we're proposing a ten percent haircut on the bondholders and the Money Market depositors. Whatever is left after that would then go (1) to the subordinated debt holders and (2) to the Abil shareholders.
Having said that, one has StanGen as one of the subsidiaries of Abil and there is some value in that. Once this whole transaction is concluded, whatever comes out of that would go to Abil shareholders.
ALEC HOGG: Do have a feeling yet of whether that's going to be just a nominal amount or could it be significant?
TOM WINTERBOER: Yes. Currently, it's actually difficult to say. We're busy with valuation of StanGen because that value would then…the moment it flows through to the new entity that would have to go at a fair value, so we're having the valuation done. We're getting a fair value view expressed by an independent party, so whatever that value would be would then flow through to Abil shareholders, but it's currently quite difficult to say exactly what that value could or should be.
ALEC HOGG: But they are likely to get something back.
TOM WINTERBOER: They should get something back because of the value at StanGen, yes.
ALEC HOGG: It was interesting hearing what Steinhoff has been doing with the JD Group's financial book. It's sold that off to a foreign financial company. Was that a thought that you might do that with Abil as well?
TOM WINTERBOER: Currently, the intention is to get the good bank moving forward and then reconsidering what else should go into that good bank. As far as the bad book is concerned, one would look at options in terms of what could be there, but currently, the transaction we have is the best transaction we have. If one becomes aware of something else and has approaches – and we've had one or two interested parties … Currently, the only firm deal is for one that we have. If we had others, we would certainly look at that.
ALEC HOGG: So as things stand right now, you're looking to list again (or relist) Abil in February, after you found a valuation for StanGen, which could or could not, be sold.
TOM WINTERBOER: Yes, and it would not be a relisting of Abil. Abil would continue. We're forming a new entity. That entity would buy the good book out of African Bank. StanGen would go and be subject to the current Abil shareholders approval, and that new entity would then be listed, Alec.
ALEC HOGG: So that new entity would require new funding, new capital, new shareholders, and new injections of funds.
TOM WINTERBOER: That's right and the consortium, as you would have seen on the 10th of August announcement, is that we're looking at R10bn funding and they have underwritten that share issue.
ALEC HOGG: So those are the big banks. Just from what you've seen in the past month, Andrew Canter from Futuregrowth who actually blew the whistle on this some time ago, said that to him, it was rank mismanagement. Are you coming to a similar conclusion?
TOM WINTERBOER: The Myburgh Commission is looking at that. They commenced their work last week. They have five months to do it in and one month to report, so I think we're currently looking at what comes out of that report. Our focus for the moment (our main focus, in any case) is (1) making sure that the deal is concluded as envisaged and (2) making sure we manage the ongoing operations of African Bank.
ALEC HOGG: You've spoken about StanGen. You've spoken about the good bank. What about Ellerines? We know it's in Business Rescue, but are you involved in managing that process?
TOM WINTERBOER: Some of our people have been asked to assist in that – business rescue practitioners – both at Ellerines Holdings Ltd and at Ellerines Furniture, and they are collecting some cash on behalf of debts extended by African Bank, so we're reaching some agreements in terms of continuing with that but that is the main thrust of that involvement. You also may have seen that they indicated to their employees as required by law that people may be retrenched on the Ellerines' side, but on the African Bank side, we're not looking at retrenchments in the immediate future.
ALEC HOGG: So the branch network as it currently stands still continues to operate. Did you think about perhaps doing some transaction, at least on part of the old African Bank with Capitec?
TOM WINTERBOER: Currently, we believe that in terms of the new bank going forward, that African Bank has a future. One just needs to look at the business model. Up to now, it's had a mono line in terms of unsecured credit, so for the moment, I think it's really looking at what else could and should go into that to make it a better bank for the future.
ALEC HOGG: What about management, given that Leon Kirkinis has been painted as the only guy who really knew what was going on there?
TOM WINTERBOER: In terms of management, for future banks one would firstly want to look at who should be the CEO for that. One would need to look at a Board of Directors for the future bank and the same with management. I think it's a bit like in a sports team. You may have some players that may need to change, but going forward one would look at it as the team taking the new bank forward.
ALEC HOGG: And the South African Reserve Bank investigation: have you been involved in any of that?
TOM WINTERBOER: Yes, we're required to assist them where needed and we obviously give that help where we can and we'll have some interaction with that investigation.
ALEC HOGG: And have you made much progress? Has anything come out of that yet?
TOM WINTERBOER: It's pretty early days, you know. The investigation was announced last week, so it's early days. They've arranged to meet with some of the Board Members of Abil and African Bank – EXCO members, etcetera – so it's just very early days. They have about five months to do their investigation and one month to report, so in the next six months there'll be something out. In the meantime, we will share with them as we go along in terms of our own work.
ALEC HOGG: Tom, there's been a lot spoken about the new Companies Act and how directors can be held personally liable. Are you seeing that this could turn out to be a test case for our new laws?
TOM WINTERBOER: Yes, I think it depends on what comes out of that investigation. Once one sees what is out there, that could well be a test case in terms of the Regal Bank. We've seen what came out of that, and that was still the previous Companies Act, but certainly, looked at that after the investigation by the Reserve Bank and one would need to see what comes out of this. It's probably premature to say 'well, if this' and 'if that'. I think one needs to look at the facts when it comes out in the next six months and then take it all based on that.
ALEC HOGG: So just to understand this all correctly, the new African Bank Holdings: you're heading for a deadline to relist at the end of February 2015. That will have assets of R29bn, which will be paid for with an injection of capital of R26bn, R10bn of that through equity and the other R16bn presumably would come from (if they wanted to) the old shareholders.
TOM WINTERBOER: In fact, we're looking at the old bondholders, so we're trying a ten percent haircut. Overall, that listed company would then also own the assets or own StanGen and we need to look at what that value would be as well, so that would also come into play.
ALEC HOGG: So the bondholders would get a chance of perhaps clawing back some of the ten percent haircut.
TOM WINTERBOER: You know, that ten percent haircut: we still need to look at how we'll best deal with it, but we will ask them to move across so if someone had a bond of 100, we'd be looking to move 90 of that cost in the new bank and continuing on that side. We are going to do a SENS announcement next week, just to try to give some more clarity to the bondholders and the Money Market funds so we can't say much more than that at this stage.