Senior bondholders denied access in African Bank bailout
(Reuters) – Wholesale depositors and investors who own senior debt issued by African Bank Investments will not be able to access their funds or receive any interest payments while the unsecured lender is under outside supervision as part of its $1.6 billion bailout.
To pay for the bailout, the central bank is imposing a 10 percent loss on senior debt holders and wholesale depositors, usually other banks, large companies or institutional investors. Junior bondholders will see their investment converted into equity.
Abil's retail depositors will be protected and can continue to receive interest and access their funds while the bank is under outside supervision.
Abil was almost exclusively focused on selling unsecured loans – which are not backed by collateral – to customers who often did not have an established credit history. It took few deposits and did not offer many traditional banking services.
The central bank's decision to impose losses on senior bonds, one of the highest ranking forms of unsecured debt, contrasts with the recent decision by Portuguese authorities to shield such investors in their bailout this month of Banco Espirito Santo, once the country's largest listed bank.
Under new European rules on dealing with failing banks, losses could be imposed on senior bondholders and large depositors from 2016 to avoid a repeat of the financial crisis, when taxpayers shelled out 1.6 trillion euros to recapitalise banks and guarantee their liabilities.